How you can tap into the equity in your home

Need some extra cash to put towards buying that investment property? You might not need to look further than the equity you have in your existing property. Homeowners with a sizable portion of equity in their home are often able to access and use these funds for several purposes. In this article we’ll explain how you can tap into your equity and make the most of your home loan.

What is home equity?

In a nutshell, home equity is the part of your home’s value that you own outright. It is calculated by subtracting the remaining loan amount from the property's value. Since property values fluctuate, so does your equity. If your property’s value increases due to market changes or home improvements, your equity also increases.

For example, if your home is valued at $800,000 and you have $200,000 left to pay on your home loan, your equity is $600,000 (75%). Your equity can be used to help you obtain a low interest loan to help fund something like a renovation or a second property.

Try out our home equity calculator to find out how much you could have access to:

What is a home equity loan?

A home equity loan is an umbrella term for a series of loans that you obtain by using your home equity as collateral. Essentially, you can borrow against your equity. The great thing about these loans is that they give you access to large amounts of money but don’t require you to sell your property. They are also not subject to the high interest rates of other consumer credit options.

There are different types of home equity loans that are tailored to your specific needs:

Line of credit home loan

This type of equity loan allows homeowners to get cash out from their home loan. Homeowners can draw money from this fund at any time and there aren’t minimum repayments or a set term to repay the money. Another benefit is that you only pay interest on the money that you withdraw. A line of credit can be difficult to obtain if you don’t have a high amount of equity in your home.

Renovation loan

If you’d like to renovate your home but are short on money, you may be able to use cash from your home loan to fund the renovation. Ideally, the renovation should increase the property’s value and in turn increase home equity.

• Related: 11 home renovation ideas to boost your property’s value
• Related: 10 low-cost ways to make your house feel like a home

Home loan top up

This is a common equity loan type that allows homeowners to borrow money against their equity. Similarly to regular home loans, you make repayments over a fixed period of time. Top up loans are a great way to fund a variety of expenses at a low interest rate while enjoying flexible loan terms.

Seniors equity loan

This loan releases a homeowner’s equity funds to supplement their income without having to sell their home. There are no extra repayments required, and both the released cash and original home loan are repaid once the house is sold. Homeowners must be over 60 to be eligible for this loan type.

This kind of loan needs to be carefully considered with your family in mind. Before going down this route, consult with a financial professional to determine if it’s right for you.

When considering accessing your home equity, it’s a good idea to consult with a Home Loan Specialist so that you understand any risks.

What can equity be used for?

Equity can be accessed and used for a variety of purposes, such as:

• Home renovations, updates and maintenance
• Purchasing an additional property
• A holiday/travel
• Non-property related investment
• Making a large purchase, such as a car
• Paying off another debt.

Want to get cash out from your loan to cover a different expense? Get in touch with a Home Loan Specialist to find out if it’s possible.

How do I find out how much equity is in my home?

Your equity is the difference between your property’s current value and any remaining loan balance. A $500,000 property with $50,000 owed in a home loan would have $450,000 in equity.

To accurately work out your home equity, you need to know your property’s up-to-date value. You can pay for a property valuation, but some lenders offer it for free when you enquire about refinancing. To get an estimate of your home’s value, Lendi can provide you with a property value report. Try it out here:

Once you know your property’s value, use our home equity calculator to find out how much you could access:

How much equity do I need before I can access it?

The amount of equity you need before you can access it will depend on your lender and the reason you are looking to get cash out of your home loan. Generally, homeowners are able to access up to 80% of their home’s equity.

Chat with a Lendi Home Loan Specialist to find out how much cash you will be able to access and the options available.

How do I build equity?

While your home equity is subject to changes in the market, there are some things you can do to grow it:

• Renovate to increase your home’s value
• Make additional repayments
• Increase your monthly repayment amount and/or make repayments more frequently
• Utilise a redraw facility or offset account to reduce interest payable

Building your equity not only means you are moving closer to owning your property outright, but also helps you access other types of loans that can improve your lifestyle and financial situation.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.