09 Dec 14
With a home ownership ratio that is the envy of other countries, ordinary Australian home owners have enormous wealth locked up in their properties. Many have either paid off their mortgage or have a significant gap between the current value of their property and the amount left to pay. This difference is called “equity” and instead of being left idle, it can be put to use.
The most common method of tapping into this equity is by using a top-up mortgage, a type of loan that allows home owners to access these funds without having to sell their homes. They may need to pay for major renovations to the existing home, buy a new car, take the family on an overseas holiday or to consolidate existing debts. However, the people who come to see us at All Residential Real Estate are using the equity in their homes to buy investment properties.
To start a residential real estate investment portfolio requires a reasonable deposit, and this is where idle equity is put to good use. Would-be investors have all the normal living expenses to cover before they can even think of accumulating a deposit, so getting a top-up mortgage is a very attractive way of getting into the investment property market. This is how many of our clients started on the road to financial independence.
This method of borrowing has another advantage. Home loan interest rates are much cheaper than personal loans, credit cards or hire purchase rates. Our investors also find it much more convenient to have the loan funds approved before they come to us looking for suitable investment properties. It means that they can spend some time getting the right property as they don’t start paying the loan back until they access the funds.
Of course, not everyone who has equity in their home will be able to access a top-up mortgage. Just like any other type of loan, every lender has their own criteria that must be met before any funds will be advanced. If the applicant is already over-committed or their income cannot support the increased repayments that the top-up mortgage will require, the loan could be refused. Some lenders may also charge additional fees for this service.
Depending on individual circumstances, there could also be tax implications by securing an investment property using this method of financing, so here at All Residential Real Estate we recommend getting expert advice before signing any sale contracts. We are always available to show our best properties to our investor clients, and can provide advice on suitable rental properties and the local rental market – for more information go to www.arre.com.au/investor-support. However, we leave tax and legal issues to the professionals in these fields.
If you are ready to step into the investment property market, and you have enough equity in your home, a top-up mortgage could be the way to go.