Understanding Equity Release Through Refinancing
As a tradesperson, you've worked hard to build equity in your home. Whether you're a plumber, electrician, carpenter, or run any other trade business, releasing equity in your property through refinancing can open doors to investment opportunities that might otherwise seem out of reach.
Equity is the difference between what your property is worth and what you owe on your mortgage. When property values rise or you pay down your loan amount, your equity grows. Refinancing allows you to access this equity by taking out a new loan for more than you currently owe, giving you cash to invest in additional properties.
Why Tradies Should Consider Equity Release
Many tradies find themselves in a unique position. Your skills are always in demand, providing steady income, but you might not have large cash reserves sitting in the bank. Your property equity could be the key to:
• Release equity to buy the next property without waiting years to save a deposit
• Diversify your income streams beyond your trade work
• Build long-term wealth through property investment
• Take advantage of current market conditions
The Refinancing Process for Investment
When you refinance to access equity, you're essentially replacing your current home loan with a new one. The application process involves several steps that mortgage brokers who understand the trades industry can help streamline.
First, you'll need to determine your current financial situation. This includes reviewing your income from trade work, any business profits, and your existing loan repayments. Lenders will want to see banks statements and assess your capacity to service a larger loan amount.
Next comes property valuation. Your lender will need to confirm your property's current value to calculate available equity. Most lenders allow you to access up to 80% of your property value, minus your existing loan balance.
Interest Rate Considerations
When refinancing, you'll encounter different interest rate options. A variable interest rate fluctuates with market conditions, while a fixed interest rate remains constant for an agreed period. Some borrowers choose a combination of both.
If your current fixed rate period ending, this might be an ideal time to review refinance interest rates across different lenders. You could potentially access a lower interest rate while also releasing equity, making the refinancing decision even more attractive.
Loan Structure Options
Refinancing gives you the opportunity to restructure your mortgage to suit your investment goals. You might:
• Change your loan term to adjust repayment amounts
• Consolidate debts into your mortgage for easier management
• Split your loan between different rate types
• Reduce loan repayments by extending the loan term
A home loan health check during refinancing can reveal better loan options you might not have known existed. Different lenders offer various features and benefits, and what suited you when you first bought might not be optimal now.
Working with Specialist Mortgage Brokers
Tradies often have complex income structures, especially those running their own businesses. Seasonal variations, contract work, and business expenses can make your financial situation appear complicated to mainstream lenders. However, specialist mortgage brokers understand these nuances and can access loan options from banks and lenders across Australia who are familiar with trade industry income patterns.
These brokers can also check eligibility for special lender policies designed for self-employed tradies or those with irregular income patterns. The streamlined application process they offer can save you time that you'd rather spend on your trade work or with family.
Timing Your Refinance
Timing can significantly impact your refinancing success. Consider refinancing when:
• Property values in your area have increased substantially
• Your trade business is showing consistent profits
• Interest rates are favourable for investment purposes
• You have identified a specific investment opportunity
Investment Strategy Alignment
Before accessing equity, have a clear investment strategy. Are you looking to purchase residential rental properties, commercial premises for your trade business, or perhaps industrial properties? Your investment choice will influence the loan amount you need and the type of finance structure that works optimally.
Some tradies use released equity to purchase properties they can renovate using their trade skills, adding value through their expertise. Others prefer turn-key investments that require minimal hands-on involvement.
Managing Multiple Properties
Once you've used equity to purchase investment property, you'll be managing multiple property loans. This requires careful cash flow management, especially considering the seasonal nature of some trade work. Having a mortgage broker who understands your industry can help structure loans to accommodate these fluctuations.
Remember that investment property loans often have different criteria and rates compared to owner-occupied mortgages. Your mortgage broker should explain these differences and factor them into your overall strategy.
Refinancing to access equity can be a powerful wealth-building tool for tradies. With the right guidance and loan structure, you can leverage your hard-earned equity to create additional income streams and build long-term financial security. Call one of our team or book an appointment at a time that works for you to discuss how refinancing could unlock your property's potential.
