How can I use the equity in my home to buy an investment property?
Extract from RH Fusion Media Release: August 2016
With capital city markets growing by an average of more than 6% in the last 12 months and 38.3% since June 2012, there’s a good chance you might have some equity in your home that you could put to some good use.
Your home equity is the difference between your property’s market value and the balance of your mortgage. In the simplest terms, let’s assume you own a property that the bank values at $800,000 and you owe $500,000 – your equity is $300,000. However, this doesn’t mean you can now go out and purchase a property worth $300,000.
Let’s say you want to buy an investment property with a market value of $600,000. There are also additional purchase costs (legal fees, stamp duty and so on) of around $40,000, bringing the total cost to $640,000.
Assuming you get a loan approval from your bank, building society or credit union, the lender will fund 80% of the property’s market value – potentially more if you payLenders Mortgage Insurance (LMI). That is, the lender will advance you $480,000 to buy the investment property in the form of a mortgage. However, the total cost of the property is $640,000, so an additional $160,000 is required for a deposit and other upfront expenses. This ‘deposit’ can come from the equity in your existing home, which if you recall is $300,000.
It’s worth noting your home is not the only source of equity you can access – it’s also possible to use the equity in an investment property too. To find out more about how you can use home equity to buy into an investment property, why not contact Raine & Horne’s financial services division, Our Broker at ourbroker.net.au or call 1800 913 677.
For the RH Fusion media release, click here.