If you are interested in getting ahead with Real Estate Investments without having to use your savings, using the equity from an owner-occupied home or existing investment properties could be a smarter option.

Considering that saving for a deposit can take years, taking advantage of the equity can allow you to fast-track your entry or accelerate your property investment journey. It can also give you the added benefit of being able to continue to live in your existing home while acquiring another investment property with a potential source of passive income.

In today’s blog post, we clarify some of the most common questions regarding the efficient use of equity.

1. How is equity calculated?

The difference between the current market value of a property and the amount mortgaged on it is referred to as equity, e.g., a home that is currently valued at $600,000, with an outstanding mortgage of $300,000 would have the equity of $300,000 ($600,000 – $300,000).

2. How much equity can be used for a deposit for an investment property?

You cannot use all the equity available in your home as banks usually approve loans up to 80-90% of the property value. In the example above, the homeowner would most likely be able to get additional $180,000 - $240,000 as cash out from the available equity of $300,000.

3.       How can I get the best value from my existing home?

The valuation of your property (i.e., the market value as assessed by the bank) can be a differentiating factor as to how much equity you are able to use. Different banks can value your property at different market prices; hence, it is always important to have the right finance team to help you get the most equity out of your current home. That will enable you to select the bank that offers the best valuation combined with the most attractive interest rates.

Just this additional step can make a huge impact on the amount of equity you can reuse and help you fast track your investment journey.

4.       Will refinancing my house affect my lifestyle?

Yes, refinancing your existing home and taking out the equity may impact your lifestyle. Your repayments will increase depending upon the equity you plan to take out. Having said that, the current market conditions are favourable with low interest rates resulting in lower additional repayments for the borrowed equity.

For e.g., an additional $180,000 borrowing on the existing home, with a 3% mortgage interest rate will result in additional $450 interest repayments per month (assuming interest payments only, not factoring in the principal component).

Hence, you would need to factor in the additional repayments prior to deciding on taking the additional equity for further investments.

5.       What are the risks involved?

As with any kind of loan or borrowing, you are liable to continue to make the repayments on time. Inability to make repayments for additional borrowed equity can impact your serviceability and your credit history.

It is important to highlight that the rental income generated by investment properties can cover all or part of ownership expenses and mortgage repayments. For this reason, utilising your home equity for investment purposes can be safer than using it for home renovations or holiday home purchases. 

6.       When is a good time to use the equity?

The equity is calculated based on the current market value and it can fluctuate over time. The Real Estate Market has performed quite well, and the home values have registered a significant increase in the last 12 months, creating a positive scenario for those who are thinking about using their home or investment property’s equity as capital to invest further.

✅ Team SONI can help

At SONI Wealth, our team of experts lead by example when it comes to property investments. We have designed and executed an effective step-by-step system with our clients to guide and empower them to make investment decisions with confidence.

If you would like to use equity from your existing properties to get ahead with Property Investments and make the most with what you have, book your free Wealth Consultation today.