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What Is Home Equity & How Can You Use It?

 March 11, 2022

By  Chase Edwards

Using your property’s Equity can assist you in quickly increasing your investments. This is without needing to dip into your savings, and ultimately accelerate the Wealth Creation process.

Australian Property Owners are potentially sitting on a huge opportunity to drive some serious investment growth. Unfortunately, in most cases, property owners don’t even realise its potential.

However, using your equity is not without risk. While this can be a great way to get ahead, you need to make sure you cover your bases before jumping in. This is where Chase Edwards can help you through every step of the process.

What Is ‘Equity’?

The Jargon and Financial terminology can be confusing, but do not let that scare you off. We will start with the basics…

Property Equity is quite simple. It is merely the difference between the value of your property and the amount that you owe on the mortgage.

For example, if you own a property worth $700,000 and owe $450,000, your equity value would be $250,000.

Accessing the equity in your home is a great strategy to buy another property or renovate. One of the popular ways to access this is to refinance.

  • An equity loan lets you borrow against the equity in your home
  • This can be used instead of a cash deposit to buy an investment property
  • Investment property loans are often structured around using home equity
  • How much equity you can use will vary between lenders.

How Does Equity Release Work?

A large percentage of Australian Banks are happy to lend near 80 percent of your total property equity without too much difficulty.

If you are a homeowner where a large chunk of your mortgage has been paid off, then you can probably access your property’s equity. This is also the case if the property has increased in value. If qualifiable, you can then use this to invest and grow your wealth.

The main caution when it comes to lending equity is that you need to be able to service debt repayments on your mortgage. The banks look very closely at this before approving the release of your equity.

How Do You Invest With Equity?

Once you have your Equity, the most common investment strategy is to buy more property. Generally, if you have a 20 percent deposit and enough money to pay for the stamp duty and purchase costs, then you should be in a good position to buy.

If you are able to acquire an adequate amount of equity, then you can borrow the money to fund your 20 percent deposit plus extra costs. This means you can buy another property almost immediately.

The second most popular investment strategy is to use that property equity to build a share portfolio. When you borrow to make an investment, the interest payments on this debt are generally tax-deductible. This particular strategy can help you invest larger amounts of money faster whilst creating tax deductions at the same time.

However, the warning here again is that the banks will look to make sure you can cover mortgage repayments. Chase Edwards will use a sensible approach to investing, this makes sure that you can comfortably afford the cost of any investment.

If you’ve owned your home for a few years, there’s a good chance you’ve built up some reasonable equity, and this can be a valuable resource when it comes to property investment.

We can help you find out how much equity you have in your home, and how you might be able to use it to own an investment property sooner.

What Are The Risks?

Stephen Shine - Chase Edwards National Manager - Explaining Equity Investment
Stephen Shine – Chase Edwards National Manager – Explaining Equity Investment

When you borrow money to invest, it is super important that you have a rock-solid plan.

Investment property is vastly different from purchasing your family’s forever home. It comes with its own set criteria, issues, and circumstances. That’s why working with the right team of property brokers or advisers is essential. After all, these types of mistakes can be expensive…

At Chase Edwards, we have invested over $300 Million of customer funds over the last 10 years. With in-house financial strategists, financial planners, mortgage brokers, and investment property experts, we have everything you need under one roof. Whether you’re ready to purchase, have some questions, or are just considering investing in property, we’re here to help.

The Wrap Up

Using equity from your property to invest can boost your asset building and accelerate how quickly you get ahead, therefore moving you closer to financial freedom. However, achieving this goal does come with some risks that need to be carefully managed.

Work out how much money is required to achieve your plans. You may or may not want to – or be able to – access the full amount of equity that’s available, and your servicing capability is an important factor in this discussion. That is, your ability to service any additional repayments may have an impact on the amount of equity that you can access.

When you hire Chase Edwards, we will take the time to plan out your investment. Not only how it fits with your current situation, but we will also forecast any changes expected in the future.

By doing this, you will put yourself in a position to take action and work towards that ultimate goal of financial security and freedom.

If you are seriously contemplating using Equity from your property to invest, Contact Us today

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