For many Australians, equity in their home is the key that unlocks their property investment journey. Used wisely, equity can be a powerful tool to grow your portfolio and build long-term wealth. But what exactly is equity, and how can you use it to invest in property?
What is Equity?
Equity is the difference between your property’s market value and the amount you still owe on your mortgage. For example, if your home is worth $800,000 and your mortgage is $400,000, you have $400,000 in equity. However, not all of this is usable—lenders generally allow you to borrow up to 80% of your property’s value without lenders mortgage insurance (LMI).
How to Access Equity for Investment
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Equity Release Loan – You can refinance your home loan to access the usable equity and use it as a deposit for your next investment property.
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Line of Credit – A flexible option that allows you to draw funds when needed, secured against your property’s equity.
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Cross-Collateralisation – Using your existing property as security for the new loan. While convenient, this approach can be risky if not structured properly.
Why Use Equity to Invest in Property?
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Leverage Growth: Instead of waiting years to save a deposit, you can put your equity to work immediately.
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Build Wealth Faster: Using equity accelerates portfolio growth, enabling you to take advantage of rising markets.
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Tax Benefits: Interest on investment loans is generally tax deductible, helping to reduce your taxable income.
Risks to Consider
While equity is a powerful strategy, it comes with risks. Over-leveraging can place financial strain on your household, especially if interest rates rise or rental yields fall. It’s essential to have the right loan structure in place and a buffer for unexpected costs.
Final Thoughts
Using equity to invest in property can transform your financial future, but it’s important to approach it strategically. With professional advice and a clear property investment plan, you can make your equity work harder for you.
At Mirren Investment Properties, we help Australians use their equity wisely to build long-term wealth through property. If you’d like to understand how your equity can open the door to your next investment, contact us today and speak to our team.
