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Using Equity in Your Home To Buy a Second Property

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If you are already a homeowner, there is an easy way to buy a second property using the equity built up in your home. There are many individuals in Australia who have been able to buy an investment property using this equity. Another reason that guides individuals in this direction is their desire to build another asset for the financial requirements of their family in future.

Prices of properties continue to increase with each passing year. If you took a mortgage loan to finance a home 10 years ago, its value must have appreciated considerably by now. This increase in price can be a very valuable resource that you can use to secure a second mortgage loan from your bank.

How it works?

Equity is the difference between the current price or value of your home and the balance amount owed by you to your lender. So if you bought a home 10 years ago when it was priced at $250000, you have built an equity worth $100000 today if it is today valued at $300000 and your outstanding balance is $200000. You can consult your lender to know how much of an equity has built up in your property to take a decision regarding buying a second investment property.

Equity can be used to pay a down payment

Suppose you are interested in buying a commercial property worth $300000 today. You can get a mortgage loan of nearly $250000 from your bank though you will be asked by the bank to pay the remaining $50000 upfront as down payment. You can still buy this property even if you do not have this money in your account as equity in your home will help you in arranging this down payment. Banks in Australia allow investors to withdraw maximum 50% of the equity built up in their homes. If you do not have the cash to make down payment, your lender will allow you to use up this built equity for the purchase of a 2nd investment property.

Even though it is smart way to buy a 2nd investment property, you must use your equity for this purpose only if you believe you can repay your monthly obligations for both the loans simultaneously. Take this decision only if you have a stable income with prospects of increment in future. Your lender will assess your financial situation closely before approving a 2nd mortgage. It helps to have realistic rental estimates to convince your lender in this regard.

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