MANAGING A HOME LOAN EQUITY RELEASE
The equity you have in your home can open the door to additional funds. Find out how you can unlock this for a home renovation, to buy a second property or use it for other things.
What is your home equity?
Equity is the difference between the current market value of your property and the amount remaining on your home loan. As you pay off your home loan, the equity you have in your home grows, and if the property’s value increases, your equity will go up as well.
For example, if you buy a house for $450,000, with a deposit of $100,000 and a loan of $350,000 - you have equity of $100,000 in the house.
If the property’s value increases to $600,000 and you’ve repaid $150,000 on the loan, you now have a $600,000 property, minus your $200,000 home loan balance still to pay. This means your equity in the house has risen to $400,000.
Before you work out how much equity you have in your home, research recent sales in the market and get a sense for how much your property could go for if you listed it today.
Speak with us about getting your free property valuation report to get a sense of the value of your current address and check out recent sales of similar properties your the area.
How usable equity allows you to borrow
Your useable equity is the amount of equity in your home you can access and use. A bank will typically allow you to refinance up to 80% of a property’s market value without the need for Lender Mortgage Insurance. Subtract from that the amount you owe on your home loan and the remainder is your useable equity.
Once you have a reasonable idea of your home’s potential market value, it’s time to work out how much usable equity you can access with a loan increase or supplementary loan.
So, using the example above, 80% of the current market value of your home is now $480,000. You owe $200,000, therefore your usable equity is $280,000.
Understanding your usable equity will give you a clearer picture of the funds you might be able to access - speak with us about getting your free property report to see how much equity you have to play with.
Make renovations, buy another property or something else?
The usable equity in your home gives you options. You could access it to fund a renovation, maybe upgrade bathrooms or a kitchen, or build an addition to your home. Renovating your home can increase its market value.
You could also use it to top up your current home loan if you wanted to consolidate debt into one loan, or even buy a new car. The choice is yours.
Maybe you want to access your usable equity to start to invest in property. Building an investment property portfolio can help you accumulate wealth as your property grows in value, and provide you with a rental income stream.
Avoiding negative equity
Equity works both ways, meaning if your property value falls, it impacts the equity of your home. If market conditions go against you, it’s possible your market value will sink below the balance in your home loan. But you can take steps to offset any effects of this.
Boost your regular repayments
By increasing what you repay each month, you could quickly increase your equity, reducing the impact of any market fluctuations.
Make one-off contributions
If you’ve been fortunate and received a windfall or you just have some extra cash, it could be wise to use some of it to repay a portion of your home loan, which will help boost your equity in the property.
Refinance your home loan
Once you understand the property value and your potential usable equity, assess your options again. You might want to check if the terms your current home loan - such as the type of loan and interest rate - still suit your needs and plans.
If your home loan doesn't meet your current needs, you might consider refinancing your home loan, which involves moving your loan to another lender, to potentially get a better rate and features.
You might also check whether your home loan has a redraw facility, which allows you to redraw any extra home loan repayments you make, or if you can attach an offset account to your home loan. These features can help you reduce the principal on your home loan faster, which could have positive effects on your equity over time.
To sum up
- Using the equity in your home can unlock funds for home improvements or property investment
- To find out about your usable equity, speak with first about getting your free property valuation report
- Speak with us so we can help you assess your home loan to check it’s still right for you
- If you’re looking to buy, let us provide you with a free property report so you can learn more about your potential new home
Take the next step
If you’ve worked out how much usable equity you might have and you’d like to discuss your home loan options, we’re happy to help. Speak with us today about what your options are, we are here ready to help you.