Home equity is defined as the difference between a property’s market value and the total of any mortgages against it. Your equity can be a helpful resource when it comes to property investment. Whether you want to move or use your home as security for a loan to start your own business, there are several potential benefits you can enjoy from your hard-earned equity. In today’s blog, we look at ‘what is property equity’ and what equity can be used for.
Want to discuss equity with a home loan Gold Coast broker? You can give us a call on 0404 403 066 to chat with a mortgage specialist today.
What is property equity?
Wondering ‘what is property equity?’ Equity refers to the difference between what is owed on a mortgage and what your home is worth. For example, if you owe $300,000 and your home is valued at $450,000, you have an equity of $150,000.
Equity is contingent on what you pay and the value of your home, so as you pay off your mortgage or the price of your home goes up, so too does your equity. Conversely, as the value of your home goes down, your equity will take a hit too.
Depending on how much equity you have with your property, you might not even have to use any of your savings to buy a further property. Ultimately, equity makes purchasing another property easier and without the need to save from scratch.
How do you access property equity?
You can refinance your mortgage at any time, even when you’re still paying back the original home loan. Refinancing is simply the process of switching to a new home loan. To refinance, your lender will request a formal valuation be made on your home. If it has grown in value since you took out your mortgage, you may allow you to refinance the loan based on that property’s new value – which will mean you can unlock some equity in your home and use the funds for anything you like, such as paying off other debts or using it for home improvements.
What can you do with house equity?
Wondering what can do with house equity? The three most common reasons homeowners take out a home equity include:
Buy an investment property
By refinancing your current home loan, you’ll be able to access your equity and use it to invest in a rental property. This is the most common reason for accessing property equity, as it gives homeowners the chance to purchase an investment home without contributing a deposit.
Renovating your home
If your home needs a bit of work and you have a sizeable equity, you can use it to renovate your home. This is done by refinancing your home, which allows you to access up to 80% or sometimes 90% of the value of the property.
Personal Purposes or Investments such as shares
You can borrow for any personal purpose such as debt consolidation, purchase of personal goods or even a holiday. Whilst this may seem tempting you need to be careful as your mortgage can increase over time rather than decrease if you use the equity to borrow for personal purposes. A sound principle is you only borrow for assets that are likely to increase in value such as purchase of shares.
Interested to Learn More?
We hope our blog on ‘what is property equity’ has answered all your questions. If you’d like to discuss property equity options, refinancing your home or investment property home loans, you can contact Oak Tree Finance today by calling 0404 403 066, loans@oaktreefinances.com.au or via our online form, and a member of our team will be in touch shortly.