SEEKING FUNDS FOR YOUR INVESTMENT?
- Written by Melanie Toye, March 24, 2012
Wanting to buy an investment property, but don’t have the cash? A line of credit may be an option worth researching.
Using the equity in your home, you can receive up to 90% against your home loan as a line of credit for personal purposes or investments. A line of credit is a popular option among consumers due to its flexibility and features such as easy access to funds, no pre-approval for transactions, lower interest rates than credit cards and much more.
A line of credit is to be thought of as a large credit card. If you are disciplined in paying regular payments on your credit card, then give this option considerable thought. The system on how it works is simple. You are provided with a credit limit secured against your property, when you need cash you debit from the limit. As the loan gets paid back, the money becomes available to you again.
A word of caution though, when you organise a line of credit using the equity in your home, your property provides a guarantee that the line of credit funds will be repaid. If the debt goes unpaid, you will lose your property. Some banks are offering no minimum monthly repayments. If this is the case you will have to be diligent in making regular repayments.
A rough guide in determining how much credit limit you may have available to you, is by calculating your mortgage to your property’s value ratio. This determines how much equity you have in the property. If the result of the ratio is high, this means more risk for the lender and for your property.
For example, Jerry’s mortgage is $100,000. He had a valuation done on his property, which valued in at $140,000. Jerry’s loan to value ratio works out to be 71%. The loan to value ratio equates to the home’s total value.
Remember to consider upfront fees, administration fees and exit fees as well as other requirements the banks may specify, such as providing additional cash as a deposit if the loan to value ratio is high. Ensure you look into the cash out conditions.
To save the timely research of comparing financial institutions for the best deal, contact Australian Mortgage Managers to help you explore all your options to suit your needs.
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