Owning a home can be a great asset. As you pay off your mortgage, you build home equity, meaning it becomes more valuable as an investment. This equity can cover unexpected expenses, pay for planned purchases, or even fund your retirement. You'll need to take out a home equity loan to access this equity.
What Is Home Equity?
Equity is the monetary value of your home available to use after you have paid off a loan. When you take out a loan to purchase a property, the amount you owe will decrease as you make regular payments. This decrease in the loan amount and any increases in the property's market value will create equity. This equity can then be used to help with other financial needs or for new purchases.
How Can You Access Equity in Your Home?
If you own a home, you can use its equity to secure a loan. Equity home loans, also known as home equity loans, allow you to borrow money against your property. Alternatively, if you are retired, you can consider a reverse mortgage which gives you access to part of your home's value as a one-off payment or an ongoing income.
How Does Home Equity Work?
A home equity loan allows you to utilise the value of your home to borrow money. You can use the funds for any purpose, such as going on holiday, covering medical bills, merging your debts or refurbishing your property. Different lenders may have different rules regarding the purpose of the loan, but generally, they don't ask what it will be used for.
A home equity loan can be set up in two different ways. The first one is a lump sum loan, where a borrower can get a set amount of money in one go and has to pay back the loan along with interest over the loan period. The other option is to set up a line of credit. This works differently as the borrower can draw on the funds when needed, bit by bit.
By opting for a home equity loan, you can access a certain amount of money using the equity you have in your home as collateral. Your lender will decide the maximum amount you can borrow, usually around 80 per cent of your equity. You don't need to inform the bank or lender when you take out the money, but you must make repayments to stay within the credit limit. Interest will only be charged on the amount you withdraw, so you only pay for what you use.
Conclusion
A home equity loan is an effective way to access the equity in your home to make home improvements, pay off high-interest debt, or cover other large expenses. It is a type of secured loan, meaning you must put up your home as collateral to secure the loan. This loan is then repaid over some time with fixed monthly payments. When deciding whether to take out a home equity loan, it is important to consider the potential risks and benefits and all other available financing options.
Wealthy You is an Australian mortgage company servicing Sydney for almost a decade, offering various mortgage solutions to meet the specific financial needs of every client. As an alternative lending specialist, we can make refinancing your home simple. If you want access to the best home loans in Sydney, get in touch with us! We look forward to meeting you.
