Like to Use the Equity in my Home

Buying your own home is probably the biggest investment you’ll ever make. Your home is also likely to be your biggest asset. Why not put this asset to work by taking out a home equity loan?

What is Equity?

Equity is simply the difference between what your property is worth and what you owe. For example, if you have $200,000 to pay off on a home worth $500,000, you have $300,000 worth of equity. You may be able to borrow against this amount to renovate, invest in shares or managed funds, buy another property or refinance your mortgage.

How Equity Home Loan Works

An equity home loan gives you a line of credit on your mortgage up to an approved amount. The loan can be taken in full or in stages, making it particularly useful for renovating or investing.

How much you can borrow depends on your situation – your existing borrowings, income and assets are taken into account. And if the equity is for an investment property, your new and current property values will be assessed.

Benefits

Saving for renovations or a deposit can take time. Taking out an equity home loan means you can start your renovations or buy an investment property sooner.  However, it is important to remember that all debt needs to be carefully managed to maximize investment returns and minimize risks.

Using the Family Home to Buy a Second Property

Over the last five years property values have increased by more than 50 percent in many areas around the country so it’s easy to see why home equity loans have become so popular.

An added advantage is that whist interest payments on a mortgage are not tax deductible, interest payments are deductible on loans funding investments such as property, shares and managed funds.

The reasons for using these types of loans are many-attractive tax benefit, rising property prices and the opportunity for easy finance. Even, in times such as these, where the property market is flattening, you can use equity home loans to buy an investment property (at a cheaper price) and wait for the next inevitable upswing in the market.

Even though property prices aren’t going to skyrocket in the next few years, many experts still expect a moderate price growth.

Although the opportunities for quick buy-and sell investments may have largely gone, for the investor looking at mid-to-long term opportunities (say over the next 5 to 10 years), using home equity to finance growth assets as part of a wealth accumulation strategy is still an attractive proposition.