Using equity to purchase an investment property
If you've been working hard to pay off your mortgage, you may have equity in your property that could help you purchase an investment property (or achieve another financial goal).
What is equity?
Equity is the difference between what your home is worth (market value) and how much you owe on it (mortgaged amount).
Equity Example
John's current home is worth $415,000 and he owes $215,000 on his mortgage. This means he has $200,000 worth of equity. John could use some of this equity as part of a deposit on an investment property. He will need to show that he can also meet standard lending criteria, like ability to repay the loan. John makes an appointment to talk to a home lending specialist.
How to calculate your equity
To calculate your equity you need to know the current market value of your property. You could estimate your equity using market reports but the best way to calculate your equity is to have an appraisal or valuation done. You can do this by organising a property valuation privately or through your bank.
If you go through your bank for an appraisal, the final market value amount may not be able to be shared with you directly. However, your bank will be able to tell you whether you have enough equity in your current house to purchase your investment property.
Remember, you can borrow up to 80% of your existing property market value before attracting Lender's Mortgage Insurance (LMI) costs.
How to access your equity
Accessing your equity is done in the same way as a normal home loan. This involves an appointment with a lender where you discuss your borrowing power and overall financial situation. Even if you have enough equity for a deposit, you will need to show that you can repay the additional loan amount with your income and expenses in mind.
To find out if you can use equity from your existing property to purchase an investment property, talk to one of our home lending specialists today. Enquire online, visit your local branch or phone 13 14 22.
How to build equity in your property
If you'd like to build your property equity before you purchase an investment property, check out our tips on building equity in your property.