Hi Guys,
I was hoping to get an answer to question that I can't seem to get my head around myself.
It's in regards to this concept of extracting equity from property. I understand the concept and I keep reading it on this forum but I want to make sure i'm not missing anything.
My understanding: You have a house with a 500k mortgage on it, you get it valued and it's valued at 750k. You then have 250k equity in that particular property. You can then go to your bank and ask them to give you that 250k.
That's what i understand by "extracting equity". You can then use that money on various things such as purchasing another property etc.
What I dont quite understand is, aren't you just incurring more debt? I understand that debt is not always bad and that it can be used for leveraging purposes to buy more property etc. I feel as if extracting equity gets written as if it's free money or something.
Using the previous example, you have 500k mortgage on your original home, you take that 250k in equity and you now have 750k loan you owe the bank, if you use that equity to use as deposits on purchasing another home or two, you are then taking on further debt? Is the benefit of taking the equity so that the bank will now lend you more money whereas before they wouldnt have? If the bank wasn't willing to lend you that money previously is it a good idea to take the money now just because the bank will lend it to you? Obviously personal financial circumstances dictate the answer to that question.
I'm sure there are tons of things im missing, which is why I feel a touch confused.
I was hoping to get an answer to question that I can't seem to get my head around myself.
It's in regards to this concept of extracting equity from property. I understand the concept and I keep reading it on this forum but I want to make sure i'm not missing anything.
My understanding: You have a house with a 500k mortgage on it, you get it valued and it's valued at 750k. You then have 250k equity in that particular property. You can then go to your bank and ask them to give you that 250k.
That's what i understand by "extracting equity". You can then use that money on various things such as purchasing another property etc.
What I dont quite understand is, aren't you just incurring more debt? I understand that debt is not always bad and that it can be used for leveraging purposes to buy more property etc. I feel as if extracting equity gets written as if it's free money or something.
Using the previous example, you have 500k mortgage on your original home, you take that 250k in equity and you now have 750k loan you owe the bank, if you use that equity to use as deposits on purchasing another home or two, you are then taking on further debt? Is the benefit of taking the equity so that the bank will now lend you more money whereas before they wouldnt have? If the bank wasn't willing to lend you that money previously is it a good idea to take the money now just because the bank will lend it to you? Obviously personal financial circumstances dictate the answer to that question.
I'm sure there are tons of things im missing, which is why I feel a touch confused.