How much equity do I have

How much equity do I have?

A great place to start when looking to figure out how much equity you have is with online tools, such as our online equity calculator. Equity is a term that we often hear when it comes to purchasing and refinancing property, but what is it? Well, if you have a home loan, equity would be the difference between what you owe your lender on the loan, and your property’s total value. Basically, it’s the value of your property that you own outright. 

How can I access my equity?

When you learn how to access your equity to best suit your needs, it can become a powerful tool in your financial quiver. The most common way of accessing your equity is by putting it towards a deposit on a new property. However, there are many other ways to access your equity. These may include utilising your equity to refinance your outstanding mortgage or adding additional borrowings against the current property. Another method is using your property as security on another secured loan. 

It is important to speak to your bank or lender before making any decisions, as they may have conditions and limits as to how you can use your equity. It is also recommended that you seek professional advice.   

What is useable equity?

One very important thing to note when looking into your equity is that your total equity may not be yours to use in its entirety. This is because, generally speaking, your lender will calculate your useable equity as 80% of your property’s value minus the outstanding loan balance. 

For example, if your home is worth $1,000,000 and your home loan is $600,000, the lender will calculate 80% of your homes value, being, $800,000 in this situation. Therefore, your useable equity would be $800,000 (80% of home value) minus $600,000 (remaining loan balance) = $200,000.

It is also worth noting that your lender will take into account your serviceability when determining your usable equity. If your personal circumstances, such as reduced income or high liabilities, indicate that you may not be able to comfortably make all your repayments, then you may only have access to what the lenders deems an affordable amount of equity.

How can I increase equity on my home?

There are a range of things you can do to increase the equity on your home. The primary method is by making additional repayments on your mortgage. This may mean a lump sum payment or changing your monthly repayments to fortnightly or weekly repayments. Doing this reduces the interest and principal you owe on your mortgage and simultaneously increases the percentage of your property you own.

Other ways of increasing your equity is through doing things that increase the value of your property. Some of these include:

• Purchasing in a high growth area: this means that as your property’s value climbs, so will your equity

• Renovations: renovations are a great way to increase your homes value which will boost your equity

In short, they key to boosting your equity is doing things that will either reduce debt while maintaining the property’s value or increasing the property’s value.

Can I use my equity to renovate my home or purchase and investment property?

Yes you can! Utilising an equity loan to purchase an investment property or renovate your home is a great way to use the equity you have on your home. Using your equity in these ways is a great way to both grow your investment property portfolio and increase your property value once renovations are complete.

Can I use equity instead of lender's mortgage insurance?

If you have enough equity on your home, you can put it towards your deposit to avoid paying lender's mortgage insurance (LMI). However, this will typically only be the case if your equity deposit is equal to or above 20% of the property’s value. You should also keep in mind the property you are taking equity from will become another security for the new mortgage.

Does using equity on my property affect my loan term or my current home loan?

Using equity on your property will not affect your current loan term. It will, however affect the repayments on your loan as the amount borrowed will increase over the same period. As you use your equity, it is likely you will either be drawing back money you’ve paid towards your loan’s principal, or using your property’s higher value to increase your principal loan amount.

Can equity be used for anything unrelated to property?

Equity can be used for a range of things that are unrelated to property. In addition to the things mentioned above, home equity can be used for things such as:

• Lifestyle expenses such as a wedding or holiday
• Pay off things like car or credit card debt and other personal loans 
• Invest in other financial instruments such as shares

Before considering any of these it is worth talking to your lender because they may have their own terms and requirements.

Servicing loan after using equity

If you utilise equity on a property, ensure that the new loan repayment is still manageable based on your income and lifestyle. There are great online tools available such as our equity loan calculator and mortgage calculators to help you start your research. 

As always, it is very important that you seek independent professional advice prior to making any decisions.