Understanding Refinancing to Access Equity for Investment

For teaching assistants looking to build wealth through property investment, refinancing your home loan to access equity can be a powerful financial strategy. While your salary provides stability, unlocking the equity in your property can open doors to investment opportunities that may otherwise seem out of reach.

What Is Equity and Why Does It Matter?

Equity is the difference between your property's current market value and the amount you still owe on your mortgage. For example, if your home is valued at $600,000 and your loan amount is $400,000, you have $200,000 in equity. Releasing equity in your property through refinancing allows you to access some of this value without selling your home.

As property values increase and you pay down your mortgage, your equity grows. This can become a valuable resource for funding investment properties, renovations, or other wealth-building strategies.

How Refinance to Access Equity Works

A cash out refinance involves replacing your existing home loan with a new one that has a higher loan amount. The difference between your old mortgage and the new one is paid to you as cash, which you can then use for investment purposes.

The refinance process typically involves:

1. Conducting a property valuation to determine your home's current worth
2. Completing a refinance application with your chosen lender
3. Undergoing a loan review to assess your borrowing capacity
4. Settling on the new mortgage and receiving the equity funds

Most lenders will allow you to access up to 80% of your property's value without requiring lenders mortgage insurance, though some lenders offer higher ratios in certain circumstances.

Why Refinance for Investment?

Teaching assistants often find themselves in a position where their income is stable but their savings capacity is limited by living expenses. Release equity to buy the next property can accelerate your investment journey without waiting years to save a full deposit.

When you unlock equity from your home, you can use these funds as a deposit for an investment property. This strategy allows you to enter the property market as an investor while retaining your family home. The rental income from your investment property can help service the additional debt, while you benefit from potential capital growth and tax advantages.

Beyond property investment, accessing equity can fund other opportunities such as:

• Starting a tutoring business or educational consultancy
• Investing in shares or managed funds
• Funding further education or professional development
• Debt recycling strategies to convert non-deductible debt into tax-deductible debt

When to Refinance Your Home Loan

Timing your refinance can significantly impact the benefits you receive. Consider mortgage refinancing when:

• Your fixed rate period ending and you're coming off fixed rate terms
• You've been stuck on high rate products and potentially access a lower interest rate is available
• Your property value has increased substantially since your original purchase
• Interest rates have declined and you can lock in rate improvements
• You want to switch to variable or switch to fixed depending on market conditions

Many teaching assistants find themselves paying too much interest on loans taken out several years ago. Compare refinance rates regularly to ensure you're not missing opportunities to reduce loan costs. Current refinance rates may be considerably lower than what you're currently paying, which means you could save money refinancing while also accessing funds for investment.

Understanding Your Borrowing Capacity

Before applying to access equity for investment, it's important to understand your borrowing capacity. Lenders will assess your income, expenses, existing debts, and the proposed investment to determine how much they'll lend.

As a teaching assistant, your stable employment in the education sector is viewed favourably by lenders. However, you'll still need to demonstrate that you can service the additional debt. This is where having professional guidance becomes valuable – a mortgage broker who understands the education sector can present your application in the most favourable light.

Comparing Refinance Options

When you refinance your mortgage, you'll encounter various loan structures and features. Consider:

Interest Rate Types:

• Variable interest rate options that fluctuate with market conditions
• Fixed interest rate products that provide repayment certainty
• Split loans combining both variable and fixed portions

Loan Features:

• Refinance offset account facilities that can reduce your interest charges
• Refinance redraw options allowing access to extra repayments
• Interest-only periods that improve cashflow during the investment establishment phase

Some teaching assistants choose to consolidate into mortgage other debts like car loans or credit cards when refinancing. While this can improve cashflow and potentially access a better interest rate overall, ensure you understand the total cost over the life of the loan.

The Home Loan Health Check

Before committing to any refinancing strategy, consider a home loan health check. This comprehensive review examines whether your current mortgage still meets your needs or if it's time to move mortgage providers.

A loan health check assesses:

• Whether you're accessing a lower interest rate than currently available
• If your loan features align with your current financial goals
• Whether you could save on interest rate charges through refinancing
• Your equity position and investment opportunities

For teaching assistants planning their financial future, this review can reveal opportunities to save thousands over the life of your loan while positioning yourself to expand your property portfolio.

Tax Considerations for Investment Borrowing

When you access equity to fund investment activities, the interest on that portion of your loan becomes tax-deductible. This is a significant advantage that can improve your after-tax investment returns. However, it's crucial to keep your investment borrowing separate from your personal borrowing for tax purposes.

Maintaining clear records of how equity funds are used ensures you can claim appropriate tax deductions. Consider consulting with an accountant who understands investment property taxation to maximise your benefits.

Making Your Decision

Refinancing to access equity for investment isn't suitable for everyone. Consider whether:

• You're comfortable taking on additional debt
• The investment opportunity aligns with your long-term financial goals
• You have sufficient income to service the increased loan amount
• You understand the risks involved in property investment
• You have a buffer for unexpected expenses or vacancy periods

For teaching assistants considering this strategy, professional advice tailored to your circumstances is essential. Teacher Loans specialises in working with education professionals like yourself, understanding the unique opportunities and challenges you face.

Getting a lower interest rate while accessing equity can position you for long-term wealth creation. Whether you're looking at buying your first investment property or expanding an existing portfolio, the right refinancing strategy can make your goals achievable.

Call one of our team or book an appointment at a time that works for you. We'll review your current situation, discuss your investment goals, and help you understand whether refinancing to access equity is the right strategy for your circumstances. You can also request a call back and one of our specialist brokers will contact you to discuss your options.