How to use equity to get into a newly built home

What if we told you it was possible to start building a brand new home right now, without having a cash deposit? It sounds incredible, but it’s true – with the power of equity.

Read on to find out how the home value growth in your home and your years of diligent repayments could give you the keys to a new property sooner than you think.

What is equity?

Equity is the difference between the value of your home and how much you still owe on it. Every time you make a payment on your mortgage or the value of your home goes up, your equity increases too. It’s essentially a dollar value on the amount of your home that you own. This includes your initial deposit.

If you’ve owned a property in New Zealand for a number of years and have been diligently paying down your mortgage, the chances are that you’ve got a significant amount of equity sitting in your home.

Example: Last year, Alfred bought a home worth $800,000, taking a mortgage with a $200,000 cash deposit. He owes $600,000 in principal to his lender.

He initially has $200,000 in equity from his deposit. Over the last 12 months, he’s paid off $10,000 from the principal of his loan and the value of his home has gone up by $80,000.

He now owns a home worth $880,000. He owes $590,000. His equity is $880,000 minus $590,000, leaving him with $290,000 in equity. Quite the increase over just a year!

So what? Why does equity matter?

You might be wondering what equity is actually good for. It’s not like Alfred from our previous example has $290,000 cash-in-hand; it’s all locked up in his house! That’s completely true, but there are ways to unlock this equity, get access to that capital, and put it to work elsewhere.

How to access equity

There are several ways to access your equity:

• You could sell the home at the new increased value, but that could take a while and it leaves you without a place to live.
• You could get a ‘reverse mortgage’, but that drains the value of your assets and adds to your debt.

Instead, you could refinance your mortgage and use your equity in your current home as a deposit on a second home without having to convert it to cash first. This means you don’t have to sell your home or take a tricky reverse mortgage.

Using equity to build a new home

By working with a broker or lender to use the equity you’ve grown in your primary residence through diligent repayments and natural value growth, you could build a brand new home without having to put any cash savings down. This could be:

• An investment property with powerful depreciation schedule advantages.
• A fresh family home with all the builder guarantees still intact.
• A durable holiday home made with modern materials and techniques.

There’s only one thing better than a brand new, freshly built home, and that’s getting a brand new, freshly built home without waiting to save up a cash deposit.

For more information about building new homes in New Zealand and how to use equity to make that happen, get in touch with the expert team at Golstruct Homes today.