How to Tap into your Equity

So you’ve been diligently paying off your home loan and, at the same time, our property has gone up in value.

The combination of these two forces means that you have now built up equity in your home. But how do I use this to build more wealth?

Lets say your home is worth $750,000

Now lets say you the Bank $450,000.

The bank applies what we call a lending value to your home of 80%, hence in the bank’s eyes they can lend up to $600,000.

Subtracting what you owe from this figure means you have an equity position of $150,000

There are a few things you could do with this equity and we recommend you get some good financial advice as to how best to use it. Some options include:

• Take out a loan of $150,000 to invest in shares or managed funds. Make interest only repayments off this loan. You could use the dividends to meet loan repayments, or channel the dividends into your non deductible home loan debt to pay it off faster
• Subject to borrowing power, you could use the equity in your home to secure a loan against an investment property – $150,000 as a 20% deposit (and allowing say 4% of purchase price for costs) means you could buy an investment property for $625,000. The rent from this property goes towards making repayments on the investment property loan. Any surplus funds can go towards paying off your non deductible home loan debt to pay it off faster
• Then as your investment grows in value, in due course you could cash in this investment, using the proceeds to clear its associated debt and, hopefully, your home loan

Getting good financial advice, and investing wisely means that your equity can allow you to both grow your wealth and own your own home faster.

If you’d like to see how equity can work for you, get in touch with us today, at katrina@centralcoastmortgages.com.au

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