Buying property without a cash deposit
31 August 2016 MO'R Mortgage Options
You generally need a cash deposit to buy a house.
But did you know there’s a way to purchase another property – perhaps an investment, or even your next family home – without using cash?
If there’s available equity in your existing property and there’s no issue with servicing, an equity loan might be an option.
What is equity? How is it calculated?
Equity is the difference between the Estimated Market Value (EMV) of your home and the current balance on your home loan. Your equity increases, as you pay down the balance of your home loan and/or the value of your property increases.
Let’s say your existing home is valued at $550,000 and you owe $300,000 on your home loan.
If we keep to an 80% Loan to Value (of the property) Ratio, we get a maximum loan of $440,000 that could be secured against your property without incurring Lenders Mortgage Insurance.
To calculate the amount of equity you could potentially release, we subtract your existing loan amount from this figure. I.e. $440,000 – $300,000 = $140,000.
You could potentially arrange a $140,000 equity loan secured by your existing home to help you to purchase another property. (If this equity loan is used to purchase an investment property, there are likely to be taxation benefits from using this strategy instead of using cash.)
It might also allow you to purchase something sooner.
How long would it take for you to save $140,000 in cash?
If this is something you would like to look into, we can generally assist by getting a valuation completed at no cost to yourself, and in most cases without even submitting any finance applications. Just contact one of our mortgage professionals to assist.