From home renos to humble new abodes, unlocking equity opens the door to a wealth of opportunities.
If you’re a homeowner, continue reading to learn more about equity – and how you can access it to supercharge your financial status.
The lowdown on equity
According to Walshs mortgage broker Karen Holmes, equity is the difference between the current market value of your property and the amount owing on your loan.
“For example, if your house is valued at $1.2 million and you owe $600,000, then you’d have up to $540,000 in equity to use depending on our circumstances/profession” Karen says.
“A doctor looking to buy a $1 million investment with this amount of equity wouldn’t actually be out of pocket at all because we have access to special policies so they’d only need a 5% deposit and $50,000 or so for stamp duty and solicitor’s fees.”
From home reno’s to investment property to home upgrades
If you’ve paid down your loan and/or your home has increased in value, you could use your equity to:
- upgrade your home
- buy an investment property
- consolidate debts into one loan
- invest in shares or managed funds
- open your own surgery or buy medical equipment
- purchase a new car or travel.
“It’s basically like money in the bank – you can do what you want with it,” Karen says. “Providing you have enough equity, the banks will even let you withdraw up to $250,000 without documentation.”
The finer print
Here’s the kicker – equity isn’t free money. You still have to pay back the extra amount you’re borrowing – so you should probably think twice before cashing it out to fund a round-the-world holiday.
According to Walshs, the secret to equity success is to make sensible purchases so you’ll be richer in the long run.
“Building an investment property portfolio can help you accumulate wealth in the future as your property grows in value, and at the same time provide you with a rental income stream.
“Even if you use it for renovations, you should make money because it will generally increase the value of your property down the track.
“And if you use equity to buy a car and make the repayments over a five-year period, you’ll ultimately save money because interest rates on mortgages are much lower than personal or car loans.”
Building it up
With house prices increasing in today’s economic climate, chances are your equity will continue to climb as you pay off your debt – a term Karen coins ‘natural progression’.
“Anyone who’s owned a property in the past two years will have accrued equity because the market’s gone gangbusters in that time.
“It’s basically the quickest and most common way that people increase their equity.”
You can also build equity by:
- renovating your home, thereby increasing its market value
- reducing your loan balance by making more regular or larger repayments
- opening an offset account, when you hold money in an offset account, it reduces the interest you pay on your mortgage, helping you to pay it off sooner.
To find out how to unlock your home’s hidden equity – or increase it – give us a ring on (07) 3221 5677 or book a 1-1 meeting.