HOW TO USE EQUITY LIKE A PRO TO INVEST IN A SECOND PROPERTY
As the years go by, and house prices generally increase while you slowly pay off your mortgage, the equity in your home begins to grow – you start to own more, and the bank owns less! This could be put to your advantage – your equity could start working for you if you purchase an investment property.
Given the right advice, this is a strategy that could be repeated again and again.
Historically low interest rates coupled with dipping house prices make this an excellent opportunity to take a look at your current situation to see if now’s the perfect time to start building your property empire. Maybe you’re looking for a little renter, a family bach, a future home for your teenager or perhaps just looking to take advantage of the AirBnB frenzy with short-term letting, so why not have a look at all your options with one of our experts?
Understand your borrowing power
We can show you how to understand your borrowing power by working out how much “usable” equity you have in your family home. As a general rule, you can borrow up to 80% of the value of your home, or 65-70% on an existing investment property (perhaps even more if you use non-bank lenders). To work it out, take the current value of your house and multiply it by 0.8, then take away your mortgage. This is the amount that could be used as a deposit (along with any other funds you might have access to).
Banks look at a range of factors when deciding whether to approve a new loan, including your ability to service that loan, your age and income. Credit policies change all the time, and banks are bound by these rules governing LVR (loan to value ratio), which is why your own bank may not be the best lending option, depending on your circumstances.
There are lots of tricks when you consider refinancing:
- Break your current mortgage and move to a lower interest rate
- Revalue your current home to increase borrowing potential
- Restructure your current mortgage to help you get debt free faster and increase your bargaining power for a better offer and perhaps a “cashback” offer from the bank
- Extend the current term (how many years left to pay)
- Use multiple banks or lending facilities so not all your eggs are in one basket. Quite often you get a better offer from a new bank trying to attract new customers than your existing bank.
Our team of financial advisers are here to sit down with you and crunch all the numbers through our mortgage calculators to offer you the best tailor-made solution, so that you can grow your wealth over the long term. Give us a call today for a friendly chat – our mortgage advice is free!