Equity is the difference between what your house is worth and how much left you have on your mortgage. In other words, it is what you have 'in the bricks and mortor' of the property and it can be used to finance another.
If you are interested in purchasing a rental property or making another major investment, you may not have to come up with a cash deposit at all if you use your equity instead. Chances are, if you’ve been paying off your current house for a few years you can use equity in place of cash.
There are a couple of ways to build equity including:
Paying off your home mortgage faster by overpaying, especially at present with low rates around.
Increasing the value of your home through renovations
How It Works
Example, say you have a property worth $500,000 and you have $200,000 left on mortgage. This means you have $300,000 in equity – with that $300,000 you can then use this equity to go towards your new Investment purchase so if you buying at say $400,000 you can borrow the full amount and the Bank will have security over both properties. Best of all you can claim the whole amount against tax.
You may want to split the lending between Banks, and iLender mortgage advisers can help you get the most out of the equity you have.
Putting into place the right structure both financially and legally is really important.