Access $$$ in your home - Without selling.

Mortgage holders have the ability to access funds within their home to use for a multitude of purposes. These can include renovations, holidays and cars (in no way am I advocating for any of these). Many however are unaware that funds can also be used to purchase more property.

The basic principle of accessing equity involves refinancing or 'cashing out' some value in your home that you may have built up via an increase in value or by paying down debt. There are a few considerations however. Firstly, as you are taking on more debt serviceability criteria must be met (you must be able to pay according to the lender). Secondly most lenders will only allow you to lend up to 80% of the value of your home (80% Loan to Value Ratio). Lets look at an example for an owner occupied property worth $500k with a mortgage owing $350k -

Property Value = $500 000

Loan Size = $350 000

Equity = $150 000

80% LVR = $400 000 (Property Value x 80%)

Available Equity = $50 000 (80% LVR - Loan Size)

In the example above a borrower can cash out only available equity. This $50k can then be used to fund a new investment property. It may be used for deposit and purchasing costs.

It is worth noting that this $50k should be kept as a separate loan split from the original mortgage. The interest on the orignal loan portion of $350k is not tax deductible as the loan was for a primary place of residence (PPOR). However the interest on the $50k now becomes deductible if used to purchase an investment property and not for personal use. Seek tax advice from a qualified accountant. An investment savvy mortgage broker should be able to easily set this structure up.

- The Tattooed Investor