Using the Equity in Your Home to Purchase an Investment Property
Capitalise on the equity in your home and help realise your property investment goals.
Property investment is overlooked by many Australians due to the misconception that it is only an option for the wealthy. However, with the right finance, planning, and strategies in place, an investment property may be more realistic than you think.
Many people are put off property investment by the need to raise a significant amount as a deposit. However, there are solutions. For existing homeowners, it may be possible to unlock equity (or the increased value) that has built up in their current home, combined with the ability to finance their investment purchase at 85-90%LVR with no LMI payable. The released equity should therefore be able to cover the down payment on an investment property and the timing of the equity release/deposit for settlement can often be smoothed with the use of a Deposit Guarantee (AKA a Deposit Bond).
Take the following scenario as an example on how you, as a borrower, can capitalise on the equity in your home to purchase an investment property:
Peter and Eliza bought their four bedroom family home in Westmead in 2010 for $660,000 putting down a $132,000 deposit and taking out a loan for $528,000. The couple recently decided that they’d look at breaking into the investment market so they contacted their mortgage broker to discuss finance. Their broker suggested that they get a valuation of their home, and they discovered that it was now estimated at $930,000.
Over the years Peter and Eliza had paid $40,000 off their original loan, leaving $498,000 owing on the property. Today’s valuation of the property, less the outstanding loan, left them with $442,000 worth of equity.
Their broker suggested that they consider refinancing their own home to 66% LVR to free up some equity (approx $125,000) for an investment. Based on the current property value and with a rental return of $500p/w on the proposed new purchase. they could easily afford to purchase a $500,000 investment property.
This strategy appealed to Peter and Eliza because they would have needed to liquidate their managed funds to raise the deposit for the investment property and this was not a viable option as these fund balances were low due to recent poor performance. They decided to put down a 20 per cent deposit on a $500,000 two bedroom apartment and take out an 80 percent loan.
The deposit came to $100,000 leaving a further $25,000 to cover stamp duty and other expenses while a $400,000 loan covered the rest read more>>