HOW TO MAKE YOUR HOME EQUITY WORK FOR YOU!
What Is Home Equity?
So you may ask yourself what this is. In this article, we will explain what home equity is and how it works, as well as some tips on how to build up your home equity.
Putting it simply, home equity is the part of the home that you own, or the portion that you have paid off. It is calculated by taking the value of your home and subtracting the amount you still owe on your home loan. If anything is left over, this is the equity you have.
At Lime Mortgage Brokers, we understand that your home can be an important part of your financial position. Whether you are considering renovating, refinancing, purchasing an investment property or simply reviewing your current mortgage, understanding the equity you have built can help you make more informed decisions about your options.
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How Does Home Equity Work?
Firstly, you will need to find out how much your property is worth, so you may need to have it valued.
Whether you can borrow additional funds and access the equity in your home depends on several factors, including your income, living expenses, and the amount you currently owe on your existing home loan.
Once you have enough equity in your home, there are several things you can do with it.
You can refinance your mortgage and potentially obtain better terms, which may allow you to pay off your loan quicker. You may also use some of the available equity to renovate your home and potentially increase your property’s value.
Another option is to use your home equity to purchase an investment property and start building wealth through rental income and potential capital growth.
However, having equity in your property does not automatically mean you can borrow the full amount. Lenders will still assess your financial circumstances, borrowing capacity and ability to repay any additional debt.
How to Build Equity in Your Home
One easy way to build equity is to review your current household budget to see if there is any money left over. If you have spare money available, you may consider putting some of it towards your home loan.
Making more regular or larger repayments can help reduce the amount you owe on your mortgage. Changing the frequency of your repayments from monthly to weekly or fortnightly may also help you pay down your loan sooner, depending on your loan structure and repayment arrangements.
Over time, reducing your home loan balance while your property value increases can help build your equity.
Can Renovating Your Home Build Equity?
Renovating your home can build equity by increasing your property’s value.
Even small improvements can have some big rewards. Look around your home and see if there are any minor changes you can make to improve the property’s overall appeal and value.
Adding to your existing home through extensions or internal renovations, as well as improving outdoor areas and landscaping, can potentially add value to your current home.
However, you should always be careful that you do not overcapitalise. The cost of a renovation does not necessarily mean that the property’s value will increase by the same amount.
Which Renovations Can Add Value?
Kitchen and bathroom upgrades generally add value, as can improvements to liveable outdoor areas.
Given Perth’s climate, many people spend much of their time outdoors, so creating an appealing, usable outdoor area can make your property more attractive to potential buyers.
Before starting a renovation, it is worth considering the likely cost of the work compared with the potential increase in your property’s value.
Using an Offset Account to Help Build Equity
Another option to consider is opening an offset account if your home loan offers this feature.
An offset account is linked to your home loan, and the balance in the account can reduce the amount of your loan balance that is used to calculate interest.
For example, if you have a $400,000 home loan and $20,000 in an eligible offset account, interest may be calculated on $380,000 rather than the full $400,000, subject to your loan terms.
This can potentially help you pay less interest over the term of your loan while still keeping access to your savings.
Using Your Equity to Grow Your Property Portfolio
Using the equity in your home as a deposit for an investment property could be the boost you need to get started.
Buying an investment property in the right area at the right time could potentially provide you with regular rental income and capital growth over time. However, investment property comes with risks and costs, and there is no guarantee that a property will increase in value or generate positive rental returns.
The amount of equity you can actually use will depend on your lender’s requirements, your property value, existing home loan balance, income, expenses and overall borrowing capacity.
Having more usable equity may give you more options when considering a second property, but you should always make sure that any additional borrowing is affordable.
How Can Lime Mortgage Brokers Help?
Understanding how much equity you have and what you can do with it can be difficult.
At Lime Mortgage Brokers, we can help you understand your current home loan position and explore the options available to you.
Whether you are considering refinancing, renovating your home or using your equity towards an investment property, we can help you understand your borrowing options and work through the lending process.
You can also meet the Lime Mortgage Brokers team to learn more about our team and mortgage broking services.
Contact Lime Mortgage Brokers Today
Why not chat with us so we can look at your current home equity and the options available to you?
Whether you want to renovate your home, refinance your mortgage or use your equity towards an investment property, we can help you understand your options.
Contact Lime Mortgage Brokers today to discuss your home loan and equity options.
Frequently Asked Questions
What is home equity?
Home equity is the difference between the current value of your property and the amount you still owe on your home loan.
How can I build equity in my home?
You can potentially build equity by paying down your home loan, making additional repayments and increasing the value of your property through suitable renovations and improvements.
Can I use my home equity to renovate?
Depending on your financial circumstances and lender requirements, you may be able to access some of your home equity to fund renovations. The lender will still assess your income, expenses, existing debts and ability to repay the additional borrowing.
Can I use home equity to buy an investment property?
Depending on your circumstances, you may be able to use available equity in your home towards an investment property. Your lender will consider your borrowing capacity and overall financial position before approving additional finance.
Does renovating always increase home equity?
Not necessarily. Renovations can increase your property’s value, but the increase may not always cover the cost of the renovation. It is important to consider whether the improvement is likely to add enough value to justify the expense.
Can an offset account help reduce home loan interest?
An eligible offset account can reduce the balance on which your lender calculates interest. This may help reduce the amount of interest you pay over the life of your home loan, depending on your loan terms.
How do I know how much equity I have?
Your equity is based on your property’s current value and the amount you still owe on your mortgage. A property valuation can indicate your property’s current market value.
Conclusion
Home equity can be an important part of your overall financial position. As you pay down your mortgage and potentially increase your property’s value, you may build equity that could provide additional financial options.
Depending on your circumstances, you may be able to use your equity to renovate your home, refinance your mortgage or contribute towards purchasing an investment property.
However, accessing your equity means taking on additional debt, so it is important to consider your borrowing capacity, repayments and overall financial position before making a decision.
Here at Lime Mortgage Brokers, we want to help you by providing valuable information to guide you through the loan process and beyond.
“Our knowledge and experience is yours.”
Shawn Swart
t. 0415 761 799
e. shawn@limemortgagebrokers.com.au
w. www.limemortgagebrokers.com.au
Disclaimer
The information contained on the Lime Mortgage Brokers website and in its posts is for general information purposes only. Lime Mortgage Brokers assumes no responsibility for errors or omissions in the contents of this publication. The information we provide may not be relevant for all individual circumstances. You should always seek professional advice before taking action in relation to any of the matters discussed in this publication.