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What is Equity?

16August

What is Equity?

Hi, I’m James Long and welcome to Victorian Lifestyle Group.

Today I’m going to discuss what equity is and how one can purchase an investment property by using the equity in their home. Equity in its simplest format is the difference between the market value of your property and the amount you still owe against your property. For example, your current home may be worth $500,000 and you may owe $300,000, you therefore have equity to the tune of $200,000. This can be used to draw down funds at a later stage should you wish to purchase an investment property.

Equity is primarily built over two things. Firstly, by paying down your mortgage over a period of time, and secondly by capital growth.

Capital Growth simply refers to the value of your home growing. For example you may have bought your property for $250,000 and ten years later it is worth $500,000 so you have experienced a Capital Growth of $250,000.

Capital growth is formed over a number of years, however with the right knowledge and sound advice, this is something you can create more quickly. You may know friends or family who have purchased at the right time in a particular area, have gone on to build at a later stage, but because they bought at that right time or that area, their initial capital growth may have gone up $20,000 – $30,000.

This is not uncommon, we have plenty of clients who achieve this through Victorian Lifestyle Group. One very important thing to remember when using your equity is to stay below your 80% lend or LVR (Loan to Value Ratio). For example, if you were looking to purchase an investment property – median house price of $400,000, your initial deposit would be $80,000. Therefore avoiding any Lending Mortgage Insurance. Banks can lend up to 95%, however be aware, once you move above the 80% will determine how much Lenders Mortgage Insurance you will pay.

To find out more speak to us today on how your equity can start working for you. Thanks again and have a great day.

 

James Long

(c) 2015 Victorian Lifestyle Group

Posted by VicLG  Posted on 16 Aug 
  • Capital Growth, Equity, Investment Property, Lenders Mortgage Insurance, LVR
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