Due to recent global events that led to a decline in the Housing Market, clients would come up to us and ask ‘How does an Equity Loan Work?’ or ‘How can I take advantage of the Equity in my home’?
Over the last few months I have had a number of clients come to me and say something to the effect of “Patrick, I think the property market is going to drop, I’d like to be in a position to buy an investment property, once the drop has happened.”
Most of these clients are planning on using some of the equity in their homes in order to buy said investment property. The catch is – if their home value drops, then they will have less equity available if they do the equity release after the drop.
So they are coming to me to get the equity released now. They plan on sitting tight until after the drop and then use the available equity to buy their chosen investment property. Obviously, they have plenty of capacity to service this debt.
Sounds Easy On Paper, Doesn’t It?
Not all lenders approve of this type of borrowing, if you tell some lenders that you want to borrow money for an investment property they won’t do an equity release unless you also do your investment loan with them. That allows them to do what is known as cross-collateralisation. So if you get into any financial trouble on one property, they can use the other property as collateral.
It can be a very bad deal for investors.
Others will want to expect you to have an investment property picked out, which if you are forecasting a market crash means you certainly haven’t picked ‘the one’ yet.
Other lenders will be perfectly happy if we tell them “We want to do an equity release in order to get a deposit for an investment property that we will purchase in the future.”
This basically leaves you with a couple of options, the first one is to go around lender by lender and hope you can find one that will lend to you on favourable terms. The second would be to work with Mortgage World Australia – we know which lenders require what and where to go to get you the mortgage you need in order to make the most of any future investing opportunities.
On another note, there are a lot of ways you can take advantage of your Home’s Equity. You can use it for any other things that you want, but ultimately, use it wisely.
Here is a list of things worth investing with your Home Equity
- Use it to purchase an investment property
- Consolidate Debt
- Starting a Business
- Making Home Improvements
- Making key purchases like a Car or any other type of equipment
- Funding other Investments such as shares
- Pay off your HELP debt or other student debt
- Funding your next vacation 😉