How can new investors leverage equity?
With home prices rising in value over the past few years, you might find yourself in a position where you can use that newly created equity to expand your property portfolio.
One of the most powerful elements of owning property is the ability to access equity and put it towards the purchase of an investment property.
If you’re thinking about starting to grow your property portfolio, this is how you can potentially do it.
Know the equity in your property
The first thing to check is that you actually have accessible equity in your property. Lenders typically like to see that you can put down 20 per cent of the value of your home when you first take out a mortgage. Similarly, if you want to access the equity in your property, they will probably need to see that you have this amount.
If your property has increased in value since you purchased it while you’ve been making regular principal and interest repayments, you might be in a position where you have extra equity you can use. Sometimes there is the ability to buy a home and refinance with less than 20 per cent equity through tools like Lenders Mortgage Insurance (LMI), however, it’s best to speak to a mortgage broker and compare your options if you are under that level.
This strategy accesses the equity in your property by refinancing, which is effectively taking out another loan (or multiple loans) and paying out your current mortgage. If you purchased a $500,000 property using a $100,000 deposit and the value of the home has increased to $800,000, you’ve seen an equity uplift to $400,000.
If you refinance the property, you can leave 20 per cent of the value of the property and potentially access up to $240,000 that you could put towards an investment property. Tapping into your equity through refinancing is an incredibly powerful tool to expand your portfolio.
As we always say in Wealthi, each situation and experience is different, so don't hesitate to reach out to our Lending Specialist team for free advice and check your situation: