Jul 3, 2019 10:13:00 AM

Using Your Equity to Buy an Investment Property

Topics: nz mortgage, Investing in Property, NZ Mortgage Adviser, Home Loan Advice, Investment Finance, Investment Tips, Mortgage Advice, Property and Investments 0

If you’re an owner-occupier looking to invest in property, you may be able to leverage your existing home to buy an investment property without dipping into your savings. Using the equity in your home is a smart way to build your property portfolio without feeling the pinch. Here’s what you need to know about using the equity in your home to buy an investment property.

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What is equity?
Equity is the difference between your home’s value and the amount you owe on your mortgage. For example, if your home is valued at $750,000 and you owe $500,000 on the loan, you have $250,000 in equity.

There are two ways to build equity. Firstly, by making regular repayments on your principal loan and interest: The more you pay down the principal, the more equity you create. Secondly, by increasing your home’s value through renovations.

How can I use the equity in my home?
If you’ve owned your home for some time and you’ve made regular repayments to your principal loan or the value of your property has increased because of a rising property market, it’s likely you will have built up equity in your property over time.

Lenders may allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. Leveraging this equity allows you to access the capital to use as a deposit against your next property purchase. In other words, you can fund the deposit for your investment property by borrowing the deposit itself.

Understandably, the more equity you have, you more you may have access to, provided you are able to service your new mortgage, of course. Based on current LVR rules, you could effectively borrow up to 80 per cent of the current market value of your home.

Accessing the equity
There are two ways to access the equity in your existing home, each with its own implications so it’s vital you seek advice from your tax adviser and lawyer before proceeding with either of these:

1. Stand-alone: you 'release your equity' as cash from one property to use as a deposit to buy a second property, keeping both properties independent.
2. Cross collateral: you 'access your equity' and buy the rental property with a cross collateral 100% LVR loan.

There are a number of factors to consider when leveraging the equity in your home to buy an investment property – like how best to structure your new loan and the tax deductibility of your investment property – so it’s worthwhile discussing your finance options with a Mortgage Express adviser before making any decisions.

Get in touch with Mortgage Express today and we’ll connect you with a mortgage adviser in your area.

To find out how a Harcourts Property Manager could help you better manage your rental properties, read this article. And you can book an obligation free rental property appraisal by completing this online form.

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While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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