Savvy helps you work out how much equity you need to buy an investment property and what other costs may be involved.
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When you’re thinking of buying an investment property, the question of how much equity you need before you embark on this journey looms large. Here Savvy looks into the subject of equity to buy an investment property and considers the other costs involved too. Savvy can help you save money by comparing financial products so you get to choose the one that’s just right for you.
In most cases, yes – investment property loans work on the same basis as normal home loans: lenders usually require a 20% deposit and will only loan around 80% of the value of the property to be purchased. This 20% can be in the form of a cash deposit or you can use the available equity in your existing home as security for your second mortgage.
If you want to know how much usable equity you have in your home, multiply the value of your home by 0.8 (representing 80% of its value) and subtract your outstanding mortgage debt from that amount. This will give you the available equity you’ve got which you may use to secure a loan on your second property. For example, if your house’s value was $700,000 and your remaining home loan debt was $350,000, your usable equity would be:
As well as the purchase price of your investment property, you should also consider the following costs which you will incur:
In theory, you don’t have to use the same lender for your home loan and your investment property loan, but it’s generally easier to do so. The reason for this is that if you decide to go with a second lender for your investment property loan, that lender will take second place to your first lender when the property is sold. This means the first lender will have to be paid in total before the second mortgage is paid off.
Because lenders have to agree to this ‘pecking order,’ they’re reluctant to play second fiddle and so are far more cautious when approving loans when another lending institution already holds a mortgage over the one property. For this reason, it is usually far less time-consuming, and less costly, to remain with the same lender for an investment loan using the equity in your existing home. However, it’s important to compare your finance options with Savvy to ensure you get the best deal for your situation.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
