The Bulletin

Making Equity Work for You

Tim Cece | Director, Search Mortgages

Equity… many people are unaware of just how it can be used as security for a future property transaction. Allow me to shed a little light on this for you.

What is Equity?

Equity is essentially the difference in value between what your property is worth and the amount you borrowed against it. Calculating the equity in your property is as easy as subtracting the balance owing (mortgage) on your loan from the current value of your property.  Equity in your property can grow by either the value of your property increasing over time or by paying down the principal amount of your mortgage. Making extra repayments on top of the minimum repayments will assist in speeding up this process, plus saving you interest on your loan.

Using your Equity

Using this equity refers to accessing extra funds on top of your current mortgage based on the available equity built up in your property.  This can be achieved via redrawing any extra repayments you have made over the period of the loan, applying to get an increase to an existing loan facility or applying for a new loan using your property as security. Accessing equity is commonly used for the following:

Debt consolidation. Paying out Credit cards, personal loans etc at residential lending rates in comparison to higher interest rates associated with the above liabilities.

Carrying out renovations on current properties/investment properties.

To assist in purchasing an investment property (can borrow the full purchase price plus government costs providing there is sufficient equity in existing property)

Using the equity/security in a guarantor scenario to allow your Child to purchase (also allows you to borrow potentially 105% of the purchase price)

As you can see there are many ways to utilise the equity in your current property and it can be a smart way to access funds at a much lower interest rate in comparison to using a Credit card or a Personal Loan. 

I have seen a vast increase in clients accessing equity for the above purposes and reaping the benefits. It is a very common practice and very straightforward providing there is the sufficient equity available. Just another financial option to consider.

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