Using home equity to buy an investment property

When it comes to investing in property, home equity can be a valuable tool. By using the equity in your home, you can get into an investment property even if you don’t have enough money saved to cover your deposit, stamp duty, and legal fees. Available equity can help get into an investment property faster than the traditional way of saving for your purchase costs.

To calculate the equity in your property, you need to take your property's market value, times that by 80% and minus the current debt. This is the portion that in general terms lenders will allow you to take out without paying mortgage insurance. For example, if your home is worth $500,000 times 80% is $400,000 and you have an outstanding mortgage of $300,000, your total home equity would be $100,000.   

If you're thinking of using home equity to buy an investment property, there are a couple of things to keep in mind. 

Be sure to compare interest rates and loan terms from multiple lenders.

Home equity loans usually have lower interest rates than unsecured personal loans, which can be a smart way to finance an investment property purchase. However, it's important to compare loan terms and repayment schedules from multiple lenders before deciding. These can add up over time, so choosing a loan with low fees and costs is crucial. By allowing a mortgage broker to shop around and compare offers, you can ensure that you get the most favourable terms on your loan.

Remember that your home equity is at risk if you default on your loan.

Therefore, it's important to only borrow what you can afford and to make sure that the investment property is a sound investment. The equity can assist with a significant sum of money for your next purchase. However, it's essential to speak to a qualified professional to ensure that it's the right decision for you before taking equity from your home.