Fairy tales always seem to end when the prince and princess get married. But of course the whole ‘happily ever after’ period can stretch many decades and people’s dreams can change and evolve over time. Really, life only begins once the initial goal is achieved.
The same goes for property in Australia. The housing dream often centres on buying an owner occupier home and beginning to pay it off. But, again, that only commences many decades of having a mortgage.
It’s important to remember that there are ways to alter your dream as you go and to make savvy decisions that will enrich you throughout your mortgage term and then for the rest of your life.
So, you may have a mortgage, but don’t switch off. It’s actually the perfect time to really get engaged.
Understanding equity and its potential
Property cycles work in a distinct way in this country. There are growth periods, peaks, corrections, troughs, recoveries and then more growth periods. But overall, the longer you stay in the market, the more your home will be worth.
But why wait 30 years to find out its value, when you could access equity along the way and turbocharge your future financial position?
Equity in your home is a powerful financial tool that can be harnessed to enhance your investment potential.
Put simply, equity is the portion of your home that you actually own. When you’re still paying a mortgage, equity is the difference between the current market value of the property and the outstanding balance of your home loan.
Your bank may let you use a portion of this to purchase additional properties or renovate existing ones.
Assess your position
The first step in harnessing equity is to accurately assess your home’s value. You can get an idea by researching recent sales in your area, using online valuation tools or engaging a professional appraiser.
Bear in mind that you can make rough plans by doing this, but that when it comes time to release the equity via the bank, their valuation may come in lower than you expect.
Get your method right
There are a number of ways you can access your equity:
– A home equity loan will allow you to borrow against your equity, providing a lump sum to use for property investment or other purposes.
– A cash out refinance involves refinancing your existing mortgage for an amount greater than what you currently owe. The excess funds are then released to be used for your investment. This option is favoured by B.Invested founder Nathan Birch, who believes you should access your equity whenever you have some so you can put it to use rather than risk it later disappearing if there is a change in market conditions.
Getting and using your funds
To obtain the funds, you’ll need to apply for a loan or refinance with a lender. Before signing on the dotted line with your existing lender, check out what else is in the market as you might get a better deal on rates, features or even the amount you can access.
A mortgage broker can help you find the right product for you. It’s best to make sure you choose a broker who understands your long term goals and can help you reach them, rather than just thinking about the best deal for this one transaction. Zinger Finance is one company that specialises in working with investors and has access to a wide range of lenders that you may not know about.
Once you’ve got your funds, it’s crucial to deploy them strategically. Ask yourself what are your goals? What strategy do you have to help you get there? Do you want to buy a new property, renovate another one? Buy multiple properties in a staggered fashion? If you go into the whole process just looking to “wing it”, you’re unlikely to make the best decisions. Speaking to the team at B.Invested can help with this.