What are the benefits and risks of using the equity in my home for investing?

Answer

There can be a range of benefits and risks in releasing the equity in your home and using it for investment―you could:

  • have an opportunity to build wealth more quickly
  • benefit from gearing
  • pay off your home loan sooner using debt recycling, providing you’re able to manage the risks involved
  • risk losing your entire property if you can’t meet loan repayments.

Borrowing against the value of your home—which is how you access your equity—may enable you to buy an investment sooner than if you had to save the money. Owning additional assets can help you build wealth more quickly although investing usually involves risks.

In addition to your investment potentially increasing in value over time, any expenses related to owning the investment, including loan interest charges, are generally tax deductible. 

A negatively geared investment can provide tax benefits while a positively geared investment effectively pays for itself and may generate income; although extra income usually means you’ll pay more tax.

What’s more, owning an investment gives you the opportunity to generate an extra source of income down the track. And a strategy like debt recycling can help you pay off your home loan sooner using the income from your investments.

Of course, you need to consider the risks involved first. For example, it’s important to understand that when you borrow against the equity in your property your overall level of debt increases. That means you’d have more financial responsibility and may also risk losing your property if you were unable to meet loan repayments.

If you’re thinking about using your equity to invest AMP’s equity calculator can help estimate the value of the equity you may have access to.

 

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.