Discussion Corner – Finding the Right Key to Real Estate
From the March 2007 edition of the Australian Property Investor Magazine. Helpful hints on real estate investments to get you started on the right foot to success.
There is, however, a pot of gold at the end of the rainbow. It’s called your home. If you’re an income earner, your home is something you can borrow against by perhaps taking out a standard mortgage or line of credit to free up cash you wish to use for other reasons. Perhaps, your financial situation has changed drastically, or your daily expenditure has soared, or you may want to invest in additional real estate properties.
There’s no doubt investments in real estate is the buzzword of the decade. Proeprty investing is certainly much more prevalent than it has ever been before. With home equity locked up in your real estate property house, real estate opportunities can pass you by unless you’re prepared. Other reasons for using the equity in your home are to improve cash flow and to cope with increased daily expenditure that may be partially due to a higher inflation rate.
For income earners, the answer to unlocking equity home built up in a property real estate is as simple as re-mortgaging. All lenders offer this facility but not all loans are suitable, so do your homework before deciding.
A revolving line of credit (RLOC) facility is something to consider. It’s a special kind of home loan that may be suitable for, say, a short term cash flow problem. In some ways, an RLOC operates more like a large overdraft. You’re given a credit limit which you can draw down at any time you like. Unlike a standard mortgage on a real estate property, however, a revolving line of credit doesn’t have a minimum repayment (with a credit card, for instance, it’s typically 2 to 3 per cent of the balance each month).
The only requirement with a revolving line of credit is to keep the level of debt below the loan’s maximum loan to value ratio (LVR) which is typically 80 to 95 per cent of the value of the real estate home property. This gives the borrower far more flexibility than with a traditional home loan that has set repayments.
With this flexibility comes the ability to pay off the loan faster than a traditional home loan. Alternatively, it gives you access to additional home real estate equity. Most lenders don’t insist that you pay as much as you can, so you can have an RLOC with no debt and available at any time you need it. There may be an ongoing fee to maintain this facility.
Access to home real estate equity is a good thing, except when the loan looks like it may never be repaid. And with a line of credit, this is a possibility!
Retirees can also be equity rich and cash poor, and a reverse mortgage is a way to access the home equity tied up in a family house. It means retirees don’t have to sell their property real estate and can unlock the equity in it by receiving a lump sum or regular instalment payments to support their lifestyle. It sounds good, so what are the catches?
Yes, a reverse mortgage does provide convenience in obtaining extra cash but it comes with a few potential hassles that everyone needs to consider thoroughly.
The first is long-term financial impact, especially on their inheritance. Perhaps the prospective home buyer borrower should discuss these plans with the family beforehand. This is a complicated issue and is one of the main reasons why financial advice should be sought from a real estate expert, before rushing in and signing on the dotted line.
Most reverse mortgage products require that you maintain the home property to a specified standard and may not allow you to make certain modifications to your real estate property. If you’re considering a reverse mortgage, make sure you plan ahead and know the real estate product with its risks as well as benefits because it’s not for everyone.
In the end, some people, whether income earners or retirees, just might opt ot go the old-fashioned and sometimes easier way – sell the real estate property and go back to renting!
For more information, please visit Australian Property Investor magazine online.
The Australian dream of working towards home ownership until the mortgage is paid off is all very noble, but often there are no extra lump sum savings factored in for other real estate property projects. That’s the traditional way many join the Equity Rich, Cash Poor Club.
There is, however, a pot of gold at the end of the rainbow. It’s called your home. If you’re an income earner, your home is something you can borrow against by perhaps taking out a standard mortgage or line of credit to free up cash you wish to use for other reasons. Perhaps, your financial situation has changed drastically, or your daily expenditure has soared, or you may want to invest in additional real estate properties.
There’s no doubt investments in real estate is the buzzword of the decade. Proeprty investing is certainly much more prevalent than it has ever been before. With home equity locked up in your real estate property house, real estate opportunities can pass you by unless you’re prepared. Other reasons for using the equity in your home are to improve cash flow and to cope with increased daily expenditure that may be partially due to a higher inflation rate.
For income earners, the answer to unlocking equity home built up in a property real estate is as simple as re-mortgaging. All lenders offer this facility but not all loans are suitable, so do your homework before deciding.
A revolving line of credit (RLOC) facility is something to consider. It’s a special kind of home loan that may be suitable for, say, a short term cash flow problem. In some ways, an RLOC operates more like a large overdraft. You’re given a credit limit which you can draw down at any time you like. Unlike a standard mortgage on a real estate property, however, a revolving line of credit doesn’t have a minimum repayment (with a credit card, for instance, it’s typically 2 to 3 per cent of the balance each month).
The only requirement with a revolving line of credit is to keep the level of debt below the loan’s maximum loan to value ratio (LVR) which is typically 80 to 95 per cent of the value of the real estate home property. This gives the borrower far more flexibility than with a traditional home loan that has set repayments.
With this flexibility comes the ability to pay off the loan faster than a traditional home loan. Alternatively, it gives you access to additional home real estate equity. Most lenders don’t insist that you pay as much as you can, so you can have an RLOC with no debt and available at any time you need it. There may be an ongoing fee to maintain this facility.
Access to home real estate equity is a good thing, except when the loan looks like it may never be repaid. And with a line of credit, this is a possibility!
Reverse Mortgages in Real Estate
Retirees can also be equity rich and cash poor, and a reverse mortgage is a way to access the home equity tied up in a family house. It means retirees don’t have to sell their property real estate and can unlock the equity in it by receiving a lump sum or regular instalment payments to support their lifestyle. It sounds good, so what are the catches?
Yes, a reverse mortgage does provide convenience in obtaining extra cash but it comes with a few potential hassles that everyone needs to consider thoroughly.
The first is long-term financial impact, especially on their inheritance. Perhaps the prospective home buyer borrower should discuss these plans with the family beforehand. This is a complicated issue and is one of the main reasons why financial advice should be sought from a real estate expert, before rushing in and signing on the dotted line.
Most reverse mortgage products require that you maintain the home property to a specified standard and may not allow you to make certain modifications to your real estate property. If you’re considering a reverse mortgage, make sure you plan ahead and know the real estate product with its risks as well as benefits because it’s not for everyone.
In the end, some people, whether income earners or retirees, just might opt ot go the old-fashioned and sometimes easier way – sell the real estate property and go back to renting!
For more information, please visit Australian Property Investor magazine online.
Labels: Cash Poor, Equity Rich, Investing in Real Estate, LVR, Property Investments, Reverse Mortgages, Revolving Line of Credit, RLOC
posted by hattrick @ 8:32 AM
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