If you've been researching the rental market and have seen that demand can often outstrip supply, you may be thinking about accessing a piece of that pie and buying an investment property. In that case, you may be looking at your options and wondering how to raise the necessary deposit but if you are an existing homeowner, have you considered an equity release? If you've never thought about this before, what do you need to consider, and could it work for you?
Access Spare Equity
As the real estate market has been buoyant in the last few years, your current home will likely accumulate in value as you pay off the mortgage, month by month. This means that you have built up "spare" equity in the property as you service that loan, and in many cases, you may now be able to access it.
Equity Release Loan
You may be able to take an equity release loan that could provide you with the money to place as a deposit. These loans are more affordable than a straightforward personal loan or credit card advance as they attract more favourable interest rates.
Calculate Available Funds
To determine if this is a good approach, you will need to calculate how much equity you have in your current property by getting a valuation. You need to employ a professional to do this, but once you have that figure, you can deduct the amount of money you still have to pay on your mortgage to determine your available equity.
Use the Equity
You may not be able to access all of the available equity and will need a specific quote to see where you are. However, you will then be able to use any equity for various purposes, including investment. In this case, you may be able to release enough value to put down a significant deposit on an investment property. By doing so, you may be able to avoid the payment of any lender's mortgage insurance, as the transaction would be seen as less of a risk.
Just remember that if you refinance your current mortgage, the monthly payments will go up, so you must be able to handle that increase comfortably before you can continue. You also need to pay off two loans simultaneously, so calculate your potential income stream carefully as you look at the rental opportunities.
Get in touch with a company like CoastFin today for further information and see where you stand.Share