How Soon Can I Withdraw Equity?
If you plan to build a property portfolio, you need to be able to withdraw equity.
Before entering a mortgage, you need to know how soon you can withdraw equity.
Here are a number of questions you need to ask before agreeing to any loan!
1) Can You Withdraw Equity At All?
Not all lenders allow you to withdraw equity. Some will cap the amount you can take out. Others won’t let you access it at all.
A big mistake many people make is to fix their interest rates. This essentially puts a freeze on their whole mortgage. They can’t withdraw equity.
Finance Manager for Zinger, Graham Turnbull, says a client who had previously fixed repayments before coming to Zinger found.
The terms and conditions of the fixed rate agreement prevented them from withdrawing equity until the term was over. That’s a long time to wait in a booming property market!
The alternative was to break the contract and pay $20,000 in break costs!
If you intend to withdraw equity, you need to let your broker know this from the beginning.
2) How Soon Can You Revalue The Property?
Lenders and loans can vary when it comes to revaluing in order to access equity. Some allow valuations six months after the purchase, while others need a minimum of 12 months.
Graham says, in some cases, lenders may not require a valuation at the time of purchase, but will accept the sales contract as proof of the purchase price instead.
Under this arrangement, it can sometimes be possible to order a valuation much sooner.
Graham says, as part of Zinger’s duty of care to its clients, a valuation will usually be ordered on the first anniversary of purchase.
This can help portfolio-building investors move on to their next purchase if they have enough equity available to fund another property deposit.
3) A Bank Valuation Is Not A Market Appraisal
When it comes to getting your property valued, you may be surprised to find it’s valued at less than what a real estate agent would suggest.
While bank valuations may be deemed “conservative” by many, it is important to understand that banks perception of value is different from a home buyers, or investors.
“The banks are looking at property in terms of how suitable it is to hold as security,” says Graham.
Valuers must present a fair and unbiased assessment so that the lender can determine the property’s value against the loan they are issuing.
Real estate agents may present the highest value they believe they can sell the property for.
A bank valuer will assess how much they believe they could sell the property for fast, in order to recoup a loan.
4) You May Not Be Able To Access 100% Of Your Equity
Just like a standard home loan, you can usually access up to 80% of your equity without paying Lenders Mortgage Insurance (LMI). So, while you may own $200,000 of equity, you may be limited to accessing $160,000.
5) Are Your Properties Cross-securitized?
If you have tied together your existing properties by cross-securitizing (or cross-collateralising) them, you may find it difficult to access equity.
For example, say you had two properties that were cross-collateralised. The first property dropped by $50,000 since you purchased it, but the second went up by $50,000.
In the eyes of the lender, those two properties have evened out in value. In other words, the poorly performing property has negated the value of the well-performing property, and there is therefore no equity available.
6) Has Your Property Increased In Value?
Whether or not the property has increased in value is an obvious factor that will affect how soon you can withdraw equity.
Graham says, a mortgage broker can run a market report before ordering a valuation. This can give a good indication of what the valuation may come in at.
He says a poorly maintained property may affect how much equity is available.
“We would always encourage property owners to maintain their property,” he says.
“If there was anything that needed doing and they had neglected it, that may affect a future valuation.”
A Finance Strategist Can Set You Up With The Best Loans For Accessing Equity
While most people get stuck on finding the cheapest rate, a good finance strategist can help investors find the best loans to suit their goals.
Choosing the right loan to begin with should help ensure you are on the right track to achieving your goals as a property investor; removing roadblocks before they even arise.