Using Your Home Equity to Buy Investment Property

Many Australian homeowners are sitting on valuable equity without realising it. If you’ve owned your home for several years, the equity you’ve built could fund your next investment property. This strategy helps you expand your portfolio without saving a separate deposit.

Equity is the difference between your property’s value and your mortgage balance. If your home is worth $800,000 and you owe $400,000, you have $400,000 in equity. However, you can’t access all of this amount.

Lenders typically allow you to access up to 80% of your property’s value. This means you can borrow against your equity while keeping a 20% buffer. Borrowing above 80% triggers Lenders Mortgage Insurance, even if you’ve paid it before.

The first step is getting an accurate property valuation. You can obtain this through comparable sales, professional valuations, or free reports from your mortgage broker. Knowing your property’s current value is essential for calculations.

Your accessible equity isn’t the only factor lenders consider. You must prove you can afford higher repayments on a larger loan. Lenders assess your income, expenses, and existing debts to determine serviceability.

Investment loans typically have higher interest rates than owner-occupied loans. However, the interest and many property costs are tax deductible. This can significantly improve the investment’s cash flow and overall returns.

Refinancing your existing home loan might be necessary when accessing equity. This is an excellent opportunity to review your current loan structure. Your broker can compare rates and features across multiple lenders.

The process involves careful planning and number crunching. You need to consider purchase costs, ongoing expenses, potential rental income, and tax implications. A mortgage broker can help you model different scenarios.

With property prices rising across Australian capital cities, using equity is becoming increasingly popular. Brisbane, Adelaide, and Perth have all reached record highs. Getting into the market sooner could mean benefiting from further growth.

Before making any decisions, seek professional advice from a qualified mortgage broker. They’ll guide you through the application process, help select suitable loans, and ensure you’re making an informed investment decision.