Often wondered how you can afford to buy another property?
Perhaps as an investment to earn extra income, or a holiday home.
Your current home might just hold the key.
As you pay down your Mortgage and your property’s value grows, you build up equity and it’s this equity that can help you buy a second property.
What is Equity?
Equity is the part of your home that you actually own.
It’s the difference between your home’s current market value and what you still owe on your Mortgage.
Here’s a simple example to explain –
John and Mary bought their first home in New Zealand five years ago for $500,000 with a 100,000 deposit, they needed a $400,000 mortgage and so had $100,000 in equity.
Over time, as they made regular mortgage repayments, the real estate market also saw their property value increase.
Now, five years later, their home is worth $700,000 and their mortgage has reduced to $350,000.
To calculate their equity, subtract the Mortgage from the home’s value:
$700,000 – $350,000 = $350,000
John and Mary potentially have $350,000 in equity – provided they meet The Reserve Bank’s Loan to Value Ratio (LVR) restrictions. They could use this equity to help buy an investment property or a holiday home.
How does equity grow?
Equity grows as you pay off your Mortgage and your property value appreciates. To boost your equity, you could:
- Make extra repayments or a lump sum payment into your mortgage.
- Make home improvements or upgrades to your home to increase its market value.
How do you access equity?
The amount of equity you can use to buy a second property depends on your Lender and financial situation. Most Lenders allow you to access up to 80% of your home’s equity, provided it’s your family home.
To access the equity, you can either refinance your existing mortgage, access cash through a redraw facility, or borrow against your equity.
- A redraw facility allows you to withdraw any extra repayments you’ve made over and above your minimum repayments.
- Refinancing your existing Mortgage could help you access better interest rates, change your loan terms, or top up your existing Mortgage.
- A home equity loan is a separate loan secured by your home’s equity.
Since Lenders have different rules, it’s a good idea to talk to us at iLender to find the right financing solution to fit your circumstances.
What else can you use equity for?
As well as using equity to buy an investment property, you can also use it in other ways:
- If you’re looking to improve your existing home, you could use equity for renovations. Not only would it make your home more liveable, but it can increase your property’s value.
- If you’re looking to pay off your outstanding debt or pay for a big purchase like a new car or boat, accessing equity could free up cash.
So if you’re ready to consider turning your home equity into an investment opportunity, getting the right advice is essential.
To explore your options and find the right financing solution to achieve your property goals feel free to reach out if you need a hand, or just to have a chat about this, pick up the phone and call 0800 LENDER (536337) or email to [email protected].
