Financing Investment Property with Home Equity

June 3rd, 2013 by

Investing in residential property is a popular way to build wealth. If you’re a new investor, accessing the equity built up in your family home can represent a quicker way for you to enter the property investment market than saving up for a deposit. Here are a few basic things to know about financing an investment property by releasing the equity in your home.


Using equity to start your property portfolio

 As a homeowner, you build up equity in your home by paying off your mortgage, and through the realisation of any capital growth.

Instead of waiting months or years, and in many cases, making considerable lifestyle sacrifices in order to save up for a deposit, you may be able to release the equity in your home and refinance your mortgage in order to invest in your first commercial or

The amount of equity you have in your property is usually calculated by subtracting any remaining debt on your mortgage from the current market value of your property. It’s also important to note that lenders will have their own methods for assessing the market value of a property.


Common loan options and features

 Depending on your lender and mortgage, you can choose from a range of loan options and features when financing an investment property:

  • Redraw facility. A redraw facility is an excellent feature to add to your property investment loans. Redraw facilities usually work by letting you redraw any additional repayments you have made. This can be useful if, for example, you need to fund repairs, or maintenance.
  • Offset accounts. A mortgage offset account gives you the option to use any deposits in the account to offset your loan balance. This usually results in a reduction of the interest payable on your investment loans
  • Additional repayments. You may also have the choice of making additional repayments on your investment loans, which can reduce the total interest paid, and the duration of your mortgage.
  • Interest-only repayments. Opting for a period of interest-only repayments can allow you to free up more cash, which you may even want to look at diverting into financing another investment property.

Potential tax savings and exemptions

 Many property investors make use of a negative gearing strategy. This may be available to you if the costs of maintaining your property (including the loan used to fund it) exceed the rental income. You can offset this loss against your other assessable income, such as your personal income or income from a business.


Another possible strategy is choosing to pay the interest on your investment property loans for the coming year in advance, as a lump sum. Paying interest in advance can be advantageous if your income has been larger than expected in the current financial year, or if you are seeking a way to offset a large capital gain in that year.



 The types of tax savings and deductions available will vary depending on your circumstances, so always seek independent advice from your accountant or tax advisor on the viability of any investment before committing to it.


 To find out more about loan options for buying an investment property, contact us today. Our experienced consultants can assist you with exploring potential investment loans, and help you take you first step towards building a property portfolio, and a financially secure future.


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