If you’ve owned your home for a
number of years you most likely have gained home equity – that’s the difference
between the property’s market value and the balance of your home loan. What
this means to you is there’s a whole stash of cash just waiting to be tapped
into either through a home loan refinance or a loan top up.
Smart moves
Invest in a rental property –
Using your home to grow wealth? Now that’s a smart move. Tapping into equity
may even mean you don’t need to save for a cash deposit. For an investment
property buyers are better off buying a well-located apartment due to strong
price growth in sought-after areas.Generally speaking, if you can afford an
apartment in a better location than a house, it’s definitely worth considering.
Properties closer to the city
centre cost more because proximity to high-income employment is a key factor.
People also prefer the proximity
to food varieties, entertainment and less valuable hours wasted in traffic.
Apartments are often concentrated
in inner-ring suburbs, near train lines or close to shopping hubs, while outer
suburbs are more likely to have houses within first-home buyer budgets.
Houses also have higher council
rates and insurance, and cost more to heat and cool.All other things being
equal, a house will bring in more rental income than an equivalent apartment.
But possibly not as much as the extra purchasing cost, given that houses sell
at much higher prices. If you’re looking to maximise rental income while
minimising expenses then an apartment might be a better fit.
Sensible – with strings attached
Consolidating personal debt – If
you’re juggling a few credit cards, a personal loan and maybe a car loan,
consolidating the lot into your home loan can streamline your finances. It
means just one monthly repayment to manage, and as home loans usually have a
lower rate, you’ll save on interest costs.But – and it’s a big but – you could
be turning short term debts into a long term debt and end up paying more than
necessary in long term interest. Use the savings on monthly repayments to make
extra home loan repayments and keep a lid on interest costs while you whittle
away the loan.
Think twice
Here today, gone tomorrow
purchases – using home equity to fund a round the world vacation, a new
designer wardrobe, or any purchase with no real lasting value calls for some
serious soul searching. Not only will you be whittling away precious equity,
you are adding the cost of long term interest to the purchases. The time may come when you really need that
equity for must-haves rather than luxuries. So think twice and weigh up other
finance options like, say, a personal loan, which will allow you to pay off big
ticket purchases buys in just a few years.
