Angela Dye offers expert advice on how to make the most of the equity in your family home.
There is a lot of discussion around equity when lenders and brokers talk about your property and loans. If you understand equity and how to use it, you could improve your financial position considerably. Equity is the difference between the value of your property and the outstanding debt you have against that property. The equity in your property will increase over time as you pay your home loan balance down and as the value of your property rises. If you have a property worth $500,000 and a loan of $300,000, then your equity is $200,000.
The amount of equity in your property that you can access will depend on your lender’s restrictions. A lender will not allow you to access all your equity, as they will always require the value of your property to be more valuable than your loan amount.
"Today's prices are making it difficult for young couples to get into their first home, so parents could use their equity to help their children get started in the housing market."
What can you use your equity for?
If you have available equity in your property you may be able to use the equity for a new car or a holiday, home renovations, purchase of an investment property or other investment opportunities.
If you decide to use your equity to purchase another property you should have a plan as to what structure you will have on the setup of the loan for your new purchase as this would be a different setup for investment from your home loan. If you decide to have both loans with the same lender it is important that you understand exactly what that means to your financial
plan for any future borrowings.
Today’s prices are making it difficult for young couples to get into their first home, so parents could use their equity to help their children get started in the housing market. If you decide to help your children purchase a home, you need to make sure that your own home is not a risk so the setup of your loans is extremely important, and you should discuss this with a professional person to make sure that you are aware of all the risks.
Tips for using equity
Understand how much equity you have in your properties.
How can you use the equity?
What are the risks associated with what you are trying to achieve?
What loan products are most suitable for your purpose?
Equity in your home will be influenced by the market. A rising market will mean that your home will be worth more. This would be a good time to consider releasing the equity. If the market turns downwards then you will see a decrease in your value and your equity will be less and you may not have enough equity to release for any worthwhile purpose.
Increasing the equity in your home can also be achieved by renovating your home, which may increase the value of your property. If you team this with a good financial strategy which will help to reduce the loan amount and improve your cashflow you will see your equity grow.
If you have equity in your home and would like to understand the most beneficial way of using that equity, then you need to talk to a qualified professional. It could change your financial position and allow you to have more control over your financial future. Ask Ang.