How much of your mortgage have you already paid off? Over a number of years, the amount really starts to add up, but if you don’t check your monthly account statements you won’t know how much value you have in your home. That amount is equity, which is the value of your home (or any asset) less money still owing on it.
If you pay off $20,000 a year, for example, over five years you’ll increase the equity of your home by $100,000 – repaying your home loan builds equity, no matter how slowly you do it. That’s only if the value of your property remains constant, however. In the current Australian market, home values are largely increasing across the country, so while you’re paying off your home loan, your property could also be gaining value.
Property equity works in your favour, but only if you know what to do with it. Savvy investors know equity is how you can build a property portfolio and start the journey toward being a full-time property investor and manager.
How much equity do you have?
In order to find out how much equity you have, check your monthly home loan account statement from BOQ and see exactly what you’ve paid off, and the amount remaining on the loan. For an accurate idea of what your property is worth, your council valuation should be readily available. Minus the amount you owe on the home from the value and that’s your equity. A BOQ consultant will be able to tell you the amount of equity you have available based on your repayments as well.
Once you know how much equity you have, you can start to strategise about how best to use it. One way it can be used is to take out a personal loan so you can access some funds to make emergency payments or invest elsewhere. Another more common way of using your equity is to take out a second home loan for an investment property.
Can equity make investing in property more manageable?
When you took out your first home loan, you would have saved for a deposit and the total amount determined how much you could borrow. Equity works in the same way – you can use it as your deposit for your next mortgage.
Rather than saving up for years again, while trying to keep up with existing home loan repayments, you can access a deposit almost instantly to take out a second mortgage. With that approved, you can buy an investment property and, if you do your research and buy something with potential, weekly rent payments will cover the cost of your second mortgage.
You don’t have to wait years to buy a second home while the values rise even further, making it harder to get into the right property. The equity is already available to use, and while there are some extra costs of owning an investment home like council rates and property management fees, once that mortgage is paid off you can sell for a profit. Alternatively, after a few years of paying off the second home loan with rent payments from the tenants, you can use that equity to buy another property. The cycle continues and your income potential rises, all without compromising your initial home loan repayments.
If you’ve always wanted to start investing in property but never knew how to go about it, equity could be the solution. You may already have enough in your current home to make a move, so speak to a representative from BOQ today to find out more.