Here’s How You Could Make the Most of the Equity in Your Home

When did you last check on the equity in your home?

As most Australians know, house prices have shot up around the country. Thanks to the record-low interest rates, low listings, and ongoing buyer demand, many homeowners are now sitting pretty in the equity scales.

Your equity in your home is basically the value of the house minus whatever you have left to pay off your home loan. But did you know you could access your equity to help buy another property? You could also use it to renovate – or even subdivide – your current home to help increase its value.

Here are a couple of things to consider when working out how to make the most of your equity.

Figure out your usable equity

Full disclosure before you get too excited: Even if your property’s value has increased, it doesn’t necessarily mean you’ll be able to access all the equity. 

Lenders generally lend up to 80% of the property’s value, but it depends on your Loan to Value Ratio (LVR). You may be able to access a higher amount, but you’ll probably have to fork out for Lenders Mortgage Insurance.

It’s time to get the calculator out.
For example, if your house was worth $1 million and you had an LVR of 80% plus a $300,000 home loan, your usable equity would be approximately $800,000 (80% of $1 million) minus what you owe on your home loan.
So, $800,000 minus $300,000 equals approximately $500,000 of available equity.

If only we covered all this stuff at school, hey?

Find out how to access your equity

Once you’ve figured out your usable equity, you’ll need to look into how to access your equity.

Refinancing is the most common way to access your equity as you’re basically getting a new home loan and paying out your old home loan. When you refinance, the lender should organise a bank valuation to see if your home’s value has changed.

Other ways to access your equity may include cash-out loans, topping up your current loan, or evening using lines of credit. But it’s especially important you speak to your home loan specialist about your situation for some personalised advice before making any decisions.

Another thing to remember when accessing equity is you’ll likely need to service any additional equity you redraw. So, if you’re not earning enough to pay for a larger loan, you might not be able to access the property’s equity.

Understanding equity might feel a bit mindboggling, so be sure to contact Pania to discuss your options.