If you’ve already got a property under your belt, chances are you’ve benefited from the exponential rise in property prices over the past few years. Take this stat: according to CoreLogic, median property prices in Australia rose by an impressive 22.1% in 2021.
For homeowners, rising property values mean you’ve likely seen a significant jump in what your current home might be worth. If you’re thinking about selling and buying elsewhere, the wealth you’ve created in your current property can fast-track your next purchase. And unlike first-time buyers, you don’t need to worry about saving up a huge deposit to make your next property move.
Instead, it could be worth using your existing property equity to buy your next home (or even upsize or downsize to a property that’s a better fit for you). To help you weigh up your options, let’s run you through how equity works and how you can access the value in your current home to help you secure the keys to your next property.
Let’s start with the basics. In a nutshell, equity is the difference between how much your property is worth and how much you still have remaining on your home loan.
Take this example: let’s say your property is valued at $1.2 million and you still have $600,000 to pay back on your loan (including interest and fees). That means the equity you have built up in your home is $600,000.
Why is this important to know as a homeowner? Well, you can actually borrow against this equity for your next property purchase. That’s because equity can be used as a deposit or security to secure a new home.
The biggest benefit of borrowing against existing equity to buy a second home is this: it helps speed up your next property purchase.
In more specific terms, here are the key benefits of tapping into equity to make your next property move:
There is a catch with borrowing against existing equity to buy a second property: you won’t necessarily be able to access the entire amount of equity in your home.
Why? Because lenders will be looking at the usable equity in your home. Usable equity is calculated using a formula known as a loan-to-value ratio (or LVR for short). Essentially, lenders will look at the value of your current home and how much you still have remaining on your loan to figure out your LVR and your home’s usable equity.
Plus, LVR is a helpful way to figure out if you can comfortably afford a loan, even if the property price shifts down slightly.
Here at Bridgit, we help homeowners secure their next property before selling their current home using a Bridgit bridging loan. We offer an LVR of up to 75% of the combined value of the property you’re buying and the property you’re selling to help get you moving.
Let’s run you through a worked example to show how we can help you access the equity in your home to fund your next property purchase:
If you’re looking for ways to boost the equity you have in your current property, there are stacks of practical steps you can take, including:
The usable equity in your current home can be used to finance value-adding renovations or be the way in for your next property purchase.
So, what steps do you need to take to access equity?
When it comes to using equity to buy your next property, this can be a smart approach to speed up your next property move. The key to making the most of your property’s equity is to find a lender and loan option that gives the flexibility and control to move on your own terms and secure approval quickly and easily.
Here at Bridgit, we help homeowners (like you) use equity to fund their next property purchase. Our easy online application process can give you same day approval, no monthly repayments and three months interest-free. Interested? Apply now for a Brigit bridging loan.
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