How Your Home Equity Can Help You Borrow Funds to Buy Next Property

The equity you have accumulated in your home loan can help you grow your portfolio of properties as well as in buying your first investment property in Australia.

To know about home equity is the simplest way – it is the market value of your existing real estate property and the balance remaining to be paid off from your home loan. If you have an existing property bought through a home loan, you equity can increase over time by making extra repayments and with the market value of the property in that increases during the tenure of your home loan.

Once the equity has increased in your property, you can avail various home buying options in Australia to purchase additional investment properties, upgrade your current home, purchase a new vehicle, buy shares to diversify your financial portfolio or even for travel and vacation.

Once you are determined to access the equity in your home, the nest step is to valuation of your home to determine the current market value.

Let’s say –

• You bought a property in the year 2010 for $200,000.
• Market value of the property at present is $275,000
• Loan amount you still need to pay is $100,000
• The equity available in your home is $175,000

After determining the amount of equity, you can initiate the application process to refinance the existing home loan. With equity in your home,you can avail loans up to 90% of the value of the property and is subject to serviceability and credit checks.

However, before you make up your mind to use the equity in your home, make sure that you have clear financial goals as per your overall financial position.The ideal solution to stay away from hassles or rejection in some cases is to seek independent financial advice from authorised financial expert.

If you are willing to know more about using equity to buy a property, talk to the specialist at Loans Direct. You can be sure of finding the most suitable Home Buying Options in Australia.

A Short Guide to Understand Fixed Rate Break Costs

If you are breaking a fixed rate home loan, you can expect some additional costs in the form of ‘break costs’. However, break costs vary from lender to lender and are usually not so easy to figure out. If you are someone with an existing fixed rate loan, here is everything you need to learn about break costs, what they are and how they can be calculated.

The Break Costs

Break costs is there to assist the lender when a borrower discontinues their fixed rate home loan and to provide sufficient coverage to the lender to cope up from any possible loss. Break costs is an estimate of the loss a lender might suffer in the event of a loan break. Moreover, in case of refinancing, break costs may only be applicable if the variable rate is lower than the fixed rate product.

Breaking a Fixed Loan – What does it mean.

There are scenarios and situations that dictates breaking a fixed loan, such as -

• If making additional home loan repayments beyond the agreed amounts

• If the loan is in default or if the repayment is not done

• In case the loan is refinanced to a new product or from a new lender

• When the loan is repaid in full much before the end of the loan term

Calculating Break Costs

One thing you must be well aware of is that calculating the break costs in not an easy thing to do, as there are numerous things to be considered. Thus, it’s best to ask the lender directly what to expect in case of a break.

Let’s try to understand the break costs through an example intended for explanation purposes onlyhere -

Kevinbuys a home with a $500,000 loan with a fixed rate of 4.5% for 5 years and he makes interest only repayments. After 3 years, he decides to sell the property and repay the outstanding loan amount in full.

The variable rate at the time of sale is 3%, a difference of 1.5% from the fixed rate.

Thus, to calculate break costs –

Break cost = (loan amount outstanding) x (wholesale rate change) x (term remaining on loan)

Break cost = ($500,000) x (1.5%) x (2)

Break Cost = $15,000

Remember that different lenders will calculate break costs in a different way. So if you have any doubts or queries about break costs, it’s better to speak with the bank directly. If you need any assistance in fixed rate or variable rate home loans Australia, talk to the experts at Loans Direct.