Understanding equity
Like buying a home, accessing your equity isn’t a decision to rush. It’s important to take the time to understand how it works before moving ahead.
Put simply, equity is the difference between your home’s current market value and what you still owe on your mortgage. As you repay your loan (or if your property value increases), the equity in your home can grow.
Before deciding how you might use your equity, there are a few important things to consider.
Accessing equity increases the total amount you owe on your home loan, which may result in higher repayments. Depending on your loan type, there may also be conditions or limitations on how much you can borrow and how much your equity can be used.
Growing your equity
There are two main ways to grow your equity. You can increase the value of your property, or reduce the balance of your loan over time.
Increase your property value
Property values may rise over time, but making the right improvements can help give your home an extra boost. Well-planned renovations can enhance your day-to-day living while also making your property more appealing to future buyers.
Structure your loan and repayments
You can also grow your equity by paying down your loan faster. Increasing the size or frequency of your repayments can help reduce your balance sooner. Features like an offset account can also help, as your savings can help reduce the amount of your loan that interest is calculated on.
Accessing your equity
To understand how much equity you have, it’s a good idea to start with an up-to-date valuation of your property.
There are a few ways you may be able to access your equity. If your loan has a redraw facility, you may be able to re-borrow extra repayments you’ve already made. Alternatively, you may be able to top up your loan to access additional funds.
It’s always worth speaking with your lender to understand how much equity you have and the most suitable way to access it.
Improve your outlook
Once you’re able to access your home’s equity, it can be used in a range of ways to support your financial goals and lifestyle.
Some common uses include:
Investing
You might use your equity to help purchase another property or explore other investment options, such as shares or managed funds.
Lifestyle
From a new car to a long-awaited holiday, equity can help fund some of life’s bigger expenses.
Home improvements
If your family has grown, or you’ve always wanted a brand new pool or deck, you can use your equity to renovate or enhance your home.