Leveraging your home equity is a great strategy to increase your savings and expand your assets. Among the various applications for home equity, here are three essential points that every borrower should be aware of. But, before we get into its applications, what exactly is equity?
What is Home Equity?
Home equity is the difference between the current value and the amount owed to the lender. Here's an example to help you understand. Assume that the borrower owes the lender $400,000 on a $500,000 property. The property equity in this example is $100,000. So, why is this significant? Your improved equity is an asset that you may use to achieve other financial goals. Let's see what your property equity can achieve for you.
Finance Your Home Renovations
Have a baby coming up and need an additional bedroom? Accessing your equity might help you achieve your remodelling or renovation goals faster. Furthermore, when done correctly, renovations may significantly enhance the value of your home and help you maximise the resale potential of your property in the future. It is also critical not to undertake renovations that surpass the worth of your property, which is referred to as overcapitalisation.
Fund a Property Investment
If you enjoy your existing neighbourhood and house, you may utilise the equity in your present home as a down payment on an investment property. This might help you financially in the long run. Purchasing an investment property in the appropriate location, close to amenities, might provide you with monthly rental income as well as a possible capital gain on your investment.
The more your equity, the larger your deposit, and the easier it should be to obtain a second loan. Don't forget that when the value in your investment property grows, the equity in your present property grows as well. You might amass a property investment portfolio over time, beginning with the equity in your house.
Consolidating Debts
Perhaps you want to combine multiple loans into a single monthly mortgage payment to help you get a handle on your finances. Or you may need to address some serious financial issues. Whatever the situation, you may use your equity to free up funds for various uses.
Ways for You to Access Your Equity
You have the option of accessing all or a portion of your equity. There are various ways to do this; you can either refinance your existing mortgage or borrow against your equity.
Redrawing Facility
This allows you to use any extra repayments you've made on your home loan over and above the minimum instalments.
Additional Funding
This allows you to borrow extra money in addition to your previous mortgage. You should be aware that it may occasionally be at a different interest rate.
Mortgage Refinancing
You may also refinance your existing mortgage to access the current market rates or other loan products that you may be eligible for, in addition to being able to borrow extra on top of your original mortgage.
Conclusion
If you've owned your house for a few years, you've probably built up some considerable home equity, which may be a great resource whether it comes to property investment, renovations, or refinancing.
Are you looking for more information about alternative finance in Sydney? Wealthy You can help! Our mortgage company offers various mortgage solutions that meet your particular financial objectives. As alternative lending specialists, we're more than capable of helping you maximise your home equity. Contact us today!
