It is possible to use your home equity to fund part or all of an investment if you have some equity built up. This funding strategy can provide the means for you to take advantage of an investment opportunity quickly, even if you do not have all the funds on hand. This article considers how you can utilise your home for investment.
Accessing Investment Funds with Home Equity
(i) How Does it Work?
Borrowing against your home equity means the lender gives you a loan that is secured by the equity in your home. Unlike financing products such as business leasing or credit cards, home equity borrowing tends to be a little more complicated.
How much you can borrow and whether you have enough equity will depend on your lender. You might be able to borrow as much as 80% of the value of your home, if you have completely paid off your mortgage.
Some lenders might ask for at least one-third ownership before allowing you to tap into the equity. In this case, you will need to have paid up at least $200,000 of a $600,000 property to be able to borrow against your home equity.
(ii) What are the Options?
There are different ways to borrow against the equity in your home. These are some of the options that may be available:
- Increase existing home loan ? You could increase your existing home loan to free up funds for investing.
- Line of credit? A line of credit allows you to draw funds for investment, though the interest rates may be higher.
- Refinance ? You could decide to refinance your mortgage completely.
- Reverse mortgage ? Reverse mortgages are available to retirees who want to access extra funds.
A loan calculator (like a mortgage calculator) cangive you a quick idea of the types of repayments you will need to make for each type of loan.
Investment Options
(i) Investment Property
Investing in property is one of the most popular types of investment. Using yourhome equity to fund the deposit and purchase costs of a new investment property could be an excellentchoice, especially since it can take considerable amount of time to save for a deposit on a property.
The loan can be used to cover renovations or repairs that could make your new property more attractive to renters. Investment properties could start generating income for the investor straight away, in the form of rental payments. This can allow investors to cover a part (or even all) of the mortgage repayments.
Once you have built some more equity in the investment property (and inyour own home), you can repeat the process to fund another investment property. Alternatively, you could use the equity to finance another type of investment.
(ii) Shares
Using the equity in your home to fund the purchase of shares is probably less common, but it can be profitable for those who pick the right shares. Unlike property, however, shares can lose their full value, so it is vital to choose your investment portfolio carefully.
(iii) Business
It is not strictly an investment if you are using the funds to invest in your own business. However, you could be a passive investor in other promising businesses. Using the equity you have built up in your home canbe a great way to access funds quickly, if you see an excellentbusiness investment opportunity.
Source: http://www.malkeenan.com/utilising-home-investment/
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