It goes without saying that building wealth requires money. Although there are a bunch of ways of creating excess income to invest, we’re going to talk about releasing equity to invest.
Equity is the difference between the value of your property and the balance of your mortgage. If you’ve been making repayments for a few years, there’s a good chance you’ve built up some reasonable equity. You can access and use this equity to invest, build wealth and improve your lifestyle.
What is an Equity Release?
An Equity Release, or cash out as it is also known, is when you release the equity from your home using a home equity loan.
- You can borrow up to 80% of the value of your property without incurring lenders mortgage insurance
- You can release up to 90% of the property value with lenders mortgage insurance
- Different lenders will have different limits on the amounts that they are willing to release as a home equity loan
Any home loan that has the funds released directly to you is considered to be cash out by the banks. They will assess whether to decline or accept your application by the amount of equity being released and your intentions.
Lenders will only release equity if the intentions have an acceptable purpose, which includes:
- Minor cosmetic renovations
- Debt consolidation
- Investment in shares
- Releasing equity to use as a deposit on your next property
- Buying a business or for investment in your business
- Investment in real estate assets
It is important to note that all lenders have different policies surrounding what they deem as acceptable or unacceptable purposes.
How much cash out is acceptable?
If you are releasing more than $10,000 to $50,000 as cash out, most lenders require proof of the purpose of the loan. This requirement is especially strict for borrowers seeking a low doc loan.
Although there are some lenders out there who only require borrowers to disclose the purpose of your loan without proof.
How equity works
You may need to get a property valuation to find out how much equity you have in your property.
Your ability to borrow additional funds to access the equity in your home will depend on factors such as; your income, living expenses and how much you owe.
Equity release for investment purposes
The most common reason people apply for an equity release is to use the funds for investing, whether in property or shares. It’s important to consider getting professional help for this kind of venture. Discuss your investment goals to a professional, so you can be on the right track towards your goals.