If you’re considering investing in property, one of the first questions that likely comes to mind is: How much deposit will I need? In New Zealand, banks require 30% for an investment property due to Reserve Bank rules. However, there are a few exceptions, such as new builds, which have more flexible requirements. Additionally, if you explore non-bank lenders you might discover options for securing a property with a smaller deposit.
Is Cash the Only Option for a Deposit?
The great news is that your deposit doesn’t always need to be cash. Many property investors use their existing property equity to fund their next investment. But what exactly is equity, and how can you use it to your advantage.
What is Equity?
Equity is the difference between the current market value of your property and the remaining balance of your mortgage. It’s the portion of the property that you truly own. For example, if your home is valued at $1,000,000 and your mortgage balance is $500,000, you’ve got $500,000 in equity.
For owner-occupied homes, banks will generally lend up to 80% of the property’s value – so in this case, $800,000. This means your usable equity is $300,000, which could be leveraged towards an investment property or other financial goals.
Why Should You Care About Equity?
- Investing in Your Future: As you pay your existing loan down your equity grows over time, adding to your wealth without you even noticing. If your house increases over that time then it can increase even more quickly.
- Unlocking Cash Flow: Need to upgrade your home, fund your child’s education, or take that dream holiday? Equity can give you access to additional lending options for these big expenses.
- Making Smart Market Moves: Knowledge is power! Working with The Mortgage Supply Co to know your equity position gives you the power to make informed decisions when buying, selling, or investing – especially in a shifting market.
How Can You Use Equity to Invest?
If you’re considering using your equity to purchase an investment property, the process typically involves refinancing your existing home loan to release some of the available equity. This can then be used as the deposit for your new property. Keep in mind that the amount you can borrow will depend on the bank’s lending criteria and the current market value of your property.
Need Help Understanding Your Equity?
If you’re unsure about how much equity you could tap into or how to use it to fund your next investment property, we’re here to help!
At The Mortgage Supply Co, we specialise in guiding clients through the process of leveraging their assets and building wealth through smart property investments.
Get in touch with us today to explore your options and start making the most of your property’s potential!
