You've started to get your mortgage on your first home under control. The idea of purchasing an investment property or a second home has crossed your mind, but you don't have any savings to draw on.
Should you consider increasing your mortgage to buy a second house?
How to use equity from your first home to buy your second
The equity you have in your home is the difference between its market value and what you still owe against it. When calculating this, use a current registered valuation on your home, as what the property is worth might have changed since you bought it.
You're able to borrow against that equity when purchasing a new property, as long as you abide by the RBNZ loan-to-value(LVR) ratio restrictions. Depending on what you're buying, there's a chance you'll need to keep 20-35 per cent equity in your house, limiting how much you can increase your mortgage by.
You'll also need to have a good payment record, and your debt-to-income ratio approved by your lender as with any other loan.
Increasing your current mortgage to buy another house has both pros and cons. Before deciding that it's the right option for you, being aware of what it'll mean in the long run is important. As there are many different ways you can leverage your equity, it's also essential to understand what each one does, and how they'll affect your property portfolio. Talking to someone who knows the industry can help ensure you make the right decisions for what you need.
If you'd like to know more about growing your empire, and making your mortgages work for you, talk to the team at Money Empire today.