Accessing your property equity to grow your portfolio.
Accessing the equity in your investment properties is essential for growing your portfolio and staying nimble as the property market goes through cycles of change. As the mortgage market continues to undergo changes, understanding how to access your equity is key if you come across investment opportunities.
As a property investor, equity is likely something that's always on your mind. Recent changes in Australia's economy including low household income growth, property price growth, and an increase in investor loans have all impacted the mortgage market. In response to these changes, the big four banks have increased interest rates for investors and lowered the number of interest-only loans that can be administered.
Like any investment strategy, staying nimble and knowing your options in the face of market changes and challenges is key. For this reason, equity is top of mind for many property investors.
To tap into your equity, refinancing of your mortgage will be required to reflect the increased value of the mortgage while making equity available for other investments. Using this strategy to continue building your property portfolio can help you build the amount of properties you hold quicker than if you waited to pay off the full mortgage on one property, while saving a deposit for the next property.
That being said, cash buffers and contingencies that will keep you secure in the face of any market shocks or financial challenges are paramount as you expand your investments.
Calculating your available equity will involve having your property valued. Most banks will allow you to have debt equating to 80% of the value of your property. Anything higher than this will incur lenders mortgage insurance. To ensure you have a buffer available for unexpected maintenance, vacancies or changes in your personal circumstances, you should avoid using all of your available equity at one time.
When you've worked out how much equity you have available to take out and reinvest, you will need to talk to your bank about securing an equity loan. The bank will take into consideration factors such as your age, number of dependants, other debts, your living expenses, income, and rental income.
From here, you can explore your options for an equity loan option that suits you. Ensure you do thorough research and due diligence with the help of a finance professional to secure an equity loan that suits your personal situation.