<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=1653223531561810&ev=PageView&noscript=1" />
MMO Team Photo

Release that Equity!

shutterstock_151698305small

Owning a property can provide a hidden wealth that once tapped into, and as a property investor, you can use this hidden wealth to help grow your property portfolio. It almost acts like as a second savings stream and may potentially relieve the need to contribute any cash savings towards your next purchase.

What we are referring to, is equity. Equity is the difference between the market value of your home and the current balance of your home loan. It can be increased when the balance of your home loan is reduced, the value of your property increases (or a mixture of both).

Exactly how much equity you can release on your existing property is determined by –
a) The current value of your home and other assets
b) The current balance of your home loan and any other loans secured by that property
c) Your available income and your existing commitments

So how does it work?

You’re looking to purchase an investment property for $480,000 and you estimate you need $20,000 to cover purchasing costs like stamp duty and legal fees.
The lender will let you borrow 80% of this property’s market value – $384,000. (It is possible to borrow more with Lenders Mortgage Insurance, but we won’t go into this here). This means that you need another $116,000 to complete your purchase.

Let’s say your existing home is valued at $500,000. If we keep to the 80% loan to value ratio, this gives us an amount of $400,000 we could potentially borrow from the lender. But, you still owe $220,000 on your home loan.

So, to calculate the amount of equity that you could release: $400,000 – $220,000 = $180,000

Releasing this equity would give you more than enough to cover the $116,000 required to purchase your new investment property.

*Please note, this example does not take into consideration the assessment process or the ability to meet servicing requirements.

So how can you use this strategy to grow your portfolio?

Using the above example, it’s fair to say that saving $116,000 for your next purchase would take some time. By using an equity loan and utilising the wealth you’ve built up in an existing property, you may be able to purchase your next property a lot sooner than expected.

As your property portfolio grows, so does your ability to leverage the equity. As more of your properties increase in value, you potentially have more sources of equity that can be released.

If you want to make the most of this strategy, it’s important to correctly structure your property loans as it can significantly affect your ability to grow your property portfolio. We can talk to you more about this in person.

For some tips on how to build up equity in your home faster, click here.


 




Share this article

Award Winning Mortgage Professionals

MO'R MORTGAGE OPTIONS