Whether you are a property investor or a home owner, growing the equity in your property has a number of advantages. But how can you maximise it?
Firstly, equity is simply the difference between what you owe on the home loan and what the property is worth. For example, if you have a property that is worth $400,000 and you owe $250,000, your equity is $150,000. You can grow your equity by either the value of the property increasing or reducing how much you owe.
The quicker you are able to boost the equity in your home, the better you will be financially. Take a look at these simple ways to help boost your equity at a steady rate.
INCREASE THE VALUE OF YOUR HOME
Hold on to the property
One of the good things about property is that it generally increases in value over time. So, theoretically, the longer you hold on to your property the more equity you will build up automatically as values increase.
Buying the right property in high demand area and holding onto it for a number of years could see you pocketing a tidy increase in value.
Due to the changeover costs like Stamp Duty and agents fees, selling within a short amount of time could see any gains in value eaten up by these costs. Holding the property for longer gives you a better chance of the increase in value being more than the changeover costs, meaning that you will come out on top.
Improve its value
Renovating your property is another way to boost its value, however you need to be smart about your decisions. Overcapitalizing is a common mistake for renovators who do not do their research and who are not careful with their budget. Speak to different professionals about what the most cost effective solutions are for adding value to your home. The kitchen and bathroom are often popular rooms to renovate as they are high traffic areas and often have the best value boost.
REDUCE HOW MUCH YOU OWE
Saving a bigger deposit
Saving a large deposit can help boost your equity right from the word go. If you have a deposit of 20% or more of the purchase price, it will also help avoid the extra costs of Lenders Mortgage Insurance (LMI) which is usually added to the loan and can amount to thousands of dollars.
If you need to lend above 80% of the value of the property, ask your lender to calculate LMI at different loan amounts to see how it differs. You might be surprised at how much it can be reduced by simply contributing a bit extra.
Choose a suitable home loan Your home loan can make all the difference in helping you to reduce the amount you owe. When looking for a home loan, you need to choose one that will help you get ahead quicker. Apart from shopping around for a competitive interest rate, ensure it has money saving features as well. An offset account, being able to pay extra and free redraw can all help make your money work harder and save you more.
Make extra repayments
Increasing your repayments is one of the best ways to pay off your home loan quicker. With interest rates at a record low, now is the perfect time to boost your repayments. So, not only will you be contributing extra towards your home loan, but if interest rates do begin to rise over the next year or two, you will already be financially prepared for these larger repayments and it won't be as much of a shock to your budget.
Before making any decisions about how you can boost your equity, you need to do your research. Use the internet to do research and speak to professionals like real estate agents, accountants and home loan lenders. From your research you can determine what will work for you.
If you are looking at home loans speak to the Lending Specialists at State Custodians. They can take you through the money saving features of our loans as well as comparing them to loans from over 30 lenders. Call now on 13 72 62 or leave your details here and they will contact you.