Understanding Home Equity and How You Can Use It

When people talk about equity in their home, they are referring to the value they have built up over time. Equity can be a useful way to renovate your home or help you buy another property, but it is important to understand how it works first.

What is equity?

Equity is the difference between what your property is worth today and how much you still owe on your home loan.

For example, if your home is worth $800,000 and your loan balance is $500,000, your equity is $300,000. This is the part of the property that you effectively own.

To understand your equity, the first step is knowing your current home value. Many people rely on outdated estimates, which can be misleading. If you would like to know what your property may be worth today and how much equity you have, you can request a property report here:https://www.tarrasoletang.com.au/property-report-request

How does equity grow?

Equity usually grows in two main ways.

• The first is through property value growth. As property prices increase over time, the value of your home rises, which increases your equity even if your loan balance stays the same.

• The second is by paying down your loan. Every repayment reduces your debt, increasing the difference between what you owe and what your home is worth.

Most homeowners build equity gradually through a combination of both. If you are unsure whether your equity has grown enough to be usable, we can help you assess this clearly.

How much equity can you use?

Most lenders allow you to borrow up to 80 percent of your property’s value without paying Lenders Mortgage Insurance. This is usually the preferred limit.

For example, if your home is worth $800,000, 80 percent is $640,000. If your current loan balance is $500,000, the usable equity would be $140,000.

Some lenders may allow borrowing up to 90 percent, but this often comes with extra costs and higher risk. We can help you understand how much equity you can use and what level makes sense for your situation.

How can equity be accessed?

There are two common ways to access equity.

One option is increasing your existing home loan. Another option is taking out a separate loan secured against your property.

In both cases, your overall debt increases. The released funds can then be used for renovations or as funds to complete a deposit and purchasing costs for another property.

Equity is not cash already sitting in your home. It is borrowed money and repayments will apply. We can explain these options in simple terms and help structure them correctly.

Using equity to renovate

Many homeowners use equity to renovate their home. Renovations can improve your lifestyle and, in some cases, increase the value of the property.

We can help you understand how much you could borrow for renovations, what the repayments would look like, and whether it fits comfortably within your budget.

Using equity to buy another property

Equity is often used as a deposit when buying a second property.

The released equity is usually used for the deposit and buying costs. A separate loan is then taken out for the remaining purchase price of the new property.

This means you must be able to afford the increased loan on your current home as well as the new loan. Lenders will assess whether you can service both loans together.

We can help you understand whether you can afford a second loan, how much you may be able to borrow, and how the overall structure would work.

Get clear advice before you proceed

Every situation is different. Your income, expenses, loan balance, property value, and future plans all matter.

If you would like to know how much equity you have, how much you can use, or whether using equity to renovate or buy another property is right for you, we can help.

You can explore our property and equity services here:https://www.tarrasoletang.com.au/services?category=20feb527-90c6-484d-a5b3-a4d6e0897e44

Our focus is on explaining your options clearly, so you can make informed decisions with confidence.