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  • Three Tips to Leverage your Home Equity

Three Tips to Leverage your Home Equity

Lesley Buckland, Home Loan Expert

Lesley Buckland
Home Loan Expert

The more you invest in your home, the more flexibility you could have with your home loan. Are you getting the most out of your equity?

Equity is the amount of your property that you own, which you can calculate by taking the total value of the property and subtracting the home loan component. For example, if you have a $300,000 property and a $200,000 mortgage, your equity in the property is $100,000.

Equity becomes important when you want to do something with your finances that requires security. Here are three things you could do by leveraging the equity in your home.

1. Move house Your home equity may allow you to move straight into a new property, without the need to save a deposit. This is useful whether you're up or downsizing, or if your situation changes. If you do move house you may be able to take your home loan with you. Home loan portability means the lender has the same loan but different collateral: your new property. It also means you could save on a loan application or establishment fee, although you may need to pay other fees, as well as taxes and duties for selling your original property.

2. Borrow for other reasons

Having equity in your home gives you the freedom to borrow more for activities such as purchasing an investment property, funding a holiday or undertaking renovations.

For instance, you could ask for a 'top up' on your home loan, where you use your home equity to increase your home loan amount to make your dreams a reality. You could take a percentage of your equity to renovate your home and you could increase its value.

It is usually cheaper to use your home loan to do this than to apply for a personal loan for the same amount, but be sure to read the fine print carefully as the borrowed amount is usually for a longer period than a personal loan. Be sure to consider your personal circumstances when making a decision.

Leverage Equity
3. Use it as savings If you’ve been making extra loan repayments to pay your home loan off quicker, you could access this money through a redraw facility (which may incur a fee). Think of it as a kind of savings where the money has been working to reduce the interest on your home loan. You can also use those savings for a ‘repayment holiday’, where the lender takes standard repayments from the excess funds instead of your usual transactional account. You might need to use this if you’re out of work due to illness or unemployment, or you’re going on holiday and don’t want to worry about repayments during your time away. If you decide to do this, contact your lender to get the details and make arrangements. Your home loan is not just a series of repayments; think of it as an investment that has some flexibility. Any equity you have in your home is an asset you can use for other financial purposes. Whether equity is an income earner or lifestyle winner, smart homeowners leverage it.
 

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