Equity is the difference between the value of your home and how much you owe on it. So, if your home is worth $600,000 and you still owe $380,000, your equity is $220,000.
The great thing about equity is that you can release it as a loan, secured against your home, at low residential interest rates, to do things like a renovation, invest in property or shares, start a business, buy a car, go on a holiday or consolidate other debts.
What you do with it is up to you.
Keep in mind you cannot use all your available equity. Banks will typically lend you 80% of the value of your home, less the debt you still owe on it. This is your useable equity. (It is possible to borrow more than 80% if you pay Lenders Mortgage Insurance).
So how much equity can you borrow? Let’s crunch the numbers for our example above:
- Value of your property = $600,000
- Bank lends @ 80% = $480,000
- Minus your existing mortgage = $380,000
- Useable equity = $100,000
You could potentially borrow up to $100,000 at a low residential rate. This is a huge saving when compared to a higher interest personal loan.
Remember that borrowing more will obviously increase your regular loan repayments. So consider your personal and financial goals before getting into more debt.
We see that borrowers typically release equity to invest. Whether it be in their own home with a renovation OR to aid the purchase of an investment property OR to invest in shares and managed funds. But the oppunities are endless.
Speak to us today to learn more about accessing your equity.
For more information contact Your Future First on 03 9362 1458 or email andy@yourfuturefirst.com.au
This is general advice only. Always consider your individual circumstances before making any financial or investment decision. Subject to lenders terms and conditions, fees, charges and eligibility criteria apply.