The property market in Australia is one of the best-performing in the world. We often go through boom phases but rarely, if ever, do we see the bust phase – or anything remotely close to it. Prices are constantly rising and there are times, like during COVID, when property growth has been on the charts. If you bought or owned any property before a boom, you might be surprised at how much it’s now worth.
Rising prices means that the level of equity (ownership) you have in your home rises, even if you still have a mortgage. You can use this equity to supercharge your wealth, secure your financial future or invest in extra properties.
What is equity?
Equity is the difference between what your home is currently worth and how much you owe on your mortgage. For example, if your property is worth $800,000 and you owe $500,000 on your home loan, your equity is $300,000 ($800,000 less $500,000).
If you don’t have any mortgage, your equity is obviously what your home is worth.
Over time, your equity will grow as you repay your loan and as your property value rises.
Unlocking your home equity
When you have significant equity in your home, you can unlock that equity to invest elsewhere. For example, it can be used as security to finance an investment property. The rental income from the investment property can then be used to help you make your investment property loan repayments and any other expenses.
This can be a great way to boost your long-term wealth. Like property prices, rental income from investment properties in good locations has been skyrocketing over the past 18 months.
Most lenders will only let you use 80% of your home’s value when you use this investment strategy. This brings down your borrowing power, but it does mean you can get a second home without having to save up another deposit.
What is negative gearing?
Negative gearing is a term that describes the situation where an investment property’s expenses (including loan interest) is greater than the tenant income it generates.
Although this sounds like a bad thing, it can result in you paying less tax because investment property expenses are tax-deductible. This is a key difference between investment properties and owner-occupied properties. The interest on your residential home loan and any other home expenses are not tax-deductible.
The increase in an investment property’s value over time can also more than offset any out-of-pocket expenses.
How many Australians have investment properties?
Buying an investment property is a popular wealth creation strategy in Australia. According to the latest figures from the Australian Taxation Office, more than 2.2 million Australians have investment properties. Some have multiple properties.
You can find out more about investment property loans here.
You can work out how much you might be able to borrow for an investment property loan here, and how much your repayments will potentially be here.
How we can help
If you’re looking to unlock the equity in your home to buy an investment property, our licensed mortgage brokers at Wisebuy can help. We can also help you with your investment property loan application.
We service a diverse range of clients in the popular Newcastle, Lake Macquarie and Maitland areas. Our expert brokers work with more than 60 lenders in the Australian market to find you the best deal.
Contact us today for an obligation-free chat to find out more. We’d be happy to answer any questions you have about unlocking your home equity.
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