PERTH & MANDURAH 08 9367 4222

08 9367 4222

shutterstock_195738788Home equity refers to the difference between the market value of your property and the balance on your mortgage. You may have good home equity if you have owned your home for a considerable amount of time, which means you can start investing even if you are still paying off your home. In general, if the value of your home increased since you purchased it, the equity you can access will also have increased, so long as you haven’t borrowed any further money against the property since you bought the home.

Home equity can be used as security when you borrow further money from a lender for things such as extending your home, renovating it, buying a car, or to travel. Aside from that, you can use home equity for property investment in order to grow your wealth.

Calculating Your Equity

How can you use your home equity for property investment? You need to calculate your equity first. You do this by subtracting your remaining debt on your mortgage from the value of the property. For example, if the property value is $400,000 and you have $150,000 left in your mortgage, then your home equity is $250,000.

While it looks very simple on the surface, it can be a bit more complicated in reality. First, the lender will send a valuer to your property. Normally, their computation of the value is not the same as what you think the market value of your property is. Your home equity will increase both as you pay off your mortgage and as the value of the property increases. This means that you can increase the value of your equity by regularly paying off your mortgage as this reduces your debt. However, it will be affected by the changes in the value of your property, which means your equity can decrease with negative market growth, even if you are diligently paying off your mortgage.

The term “available equity” is the actual equity value that you can use. In most cases, lenders will ask you to maintain 20% of the property value as a buffer. You can use your remaining available equity in two ways:

Now that you know how you can use equity for property investment, here are some things to consider:

Accessing your home’s equity may enable you to invest in property sooner that you expected. However, also remember that as with other types of investments, you have to make sure you take the necessary steps to lower your risk and increase your chances of success.