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Equity that you have in your property is a handy asset that home owners have at their disposal. It can be used to borrow against for a variety of purposes at home loan interest rates.


Equity that you have in your property is a handy asset that home owners have at their disposal. It can be used to borrow against for a variety of purposes at home loan interest rates.            

So how do you calculate how much equity you can access? Generally you can increase your loan up to 80% of the value of the property without incurring mortgage insurance. To work it out estimate the value of your property and multiply it by 80% and then deduct your loan amount. This will give you a rough guide as to how much you could potentially access. For example if you property is worth $500,000 x 80% = $400,000 less what you currently owe $350,000 leaves $50,000 equity that is potentially available. This amount will depend on what the actual valuation comes in at and how much you qualify for with your income and living expenses.

Accessing this equity to fund other things may be useful but remember that your total home loan amount will increase, which means your monthly repayments will also increase. So to avoid financial hardship, carefully consider your financial situation.

Listed below are the top uses for equity.

Invest in property

This is a popular option. Depending on how much equity you have you may enable you to borrow the full purchase price of the investment property, maximizing your tax deductions. It is a great use of equity as it is being used to purchase an asset which will produce income along the way and hopefully result in a capital gain when you sell. The rental income can be used to help meet the repayments on the loan as well.

Always have a plan before you dive into investing. Seek the advice of experts like accountants and financial planners to ensure that it is the right option for you.

Invest in general

Property is not the only option you have when it comes to investing. You can use your equity to help build an investment portfolio with a range of different assets. Some examples could include shares or managed funds.

Be aware that some investments are riskier than others. As the funds that you are investing are being borrowed, albeit at home loan interest rates, you need understand the return that you are likely to receive and whether the expected return will outweigh the interest expense. If you invest in risky investments you could risk losing money and having an ongoing loan to repay long after the investment is sold. Always seek financial advice around risk so you understand the implications.

Property renovation

Renovating is one of the most common reasons why mortgage holders access their equity. Instead of changing properties to get the extra room you need, you may want to add another bathroom or bedroom or even an outdoor entertaining area instead. By making these additions you may increase the value of your property and can help put you in a better financial position.

Overcapitalizing is always a risk, which is when the amount you spend doesn’t increase the value of the property by at least the same amount. Speak to real estate agents about your plans and the amount you are looking to spend to see what properties in the area with these improvements are selling for. This will help give you a guide as to how much to spend to maximize the value when you sell.

Buy a car

Funding the purchase of large items like cars can be a dilemma. If you haven’t put the money aside to replace it you may be weighing up whether to get a personal loan, car loan or lease. As home loan interest rates may be below these, it may be an option to increase your home loan to fund it.

Keep in mind that even though you are purchasing an asset, this asset is decreasing in value fairly quickly. The biggest mistake people make is not increasing their repayments to ensure that it is paid off at least by the time you are looking to replace it again. If you spread the cost of a car out over the full term of your home loan then you will pay a lot more in interest than if you took out a loan with a higher interest rate but paid it off quicker. If your home loan allows you to separate these funds into a separate sub account, then you can focus on paying it off quickly.

Take a holiday

Some mortgage holders use their equity to fund experiences like holidays. Although this might be the easiest way to fund it, the downside is it is not being used to buy an asset and once the holiday is over, you may be left paying for it for years to come. If you added up the cost of the holiday and added the interest that you pay, you may think twice about using the funds this way.

Ideally when you borrow against your equity, it is done to help put you in a better financial position. For example, investing can help build long term wealth and renovating can also boost the value of your property. Before considering accessing your equity, it is vital that you seek the advice of a professional. As you will be increasing your debt, you will be exposed to higher risks. An accountant or financial adviser can give you expert advice about what options will suit your own personal situation.

The Lending Specialist team at State Custodians can talk you through the pro’s and con’s of accessing your equity, calculate the new repayments or compare your current interest rate to home loans that we can offer. Call now on 13 72 62 or leave your details here and they will contact you.