How to access the equity in your property

If you’ve been repaying your home loan for some time and built up a bit of equity, or if your property’s value has recently increased, you may not be aware that you can unlock this equity.

Put simply, home equity is simply the difference between the remaining size of your home loan and current market value of your property.

By repaying your home loan principal, you can help to build up your home equity. Or if the value of your home increases, this may increase the amount of accessible equity you have.

And with the latest CoreLogic data indicating the value of property in Australia increased by over $1.1 trillion in the five months to September 2021, it’s likely that many homeowners are sitting on a home equity nest egg they may want to consider cashing in.

So, let’s explore how homeowners can access the equity in their property, and the benefits and risks of doing so.

Calculating your home equity

There are several reasons homeowners may be considering accessing the equity in a property, including for home renovations that can further boost an investment property’s value, or to pay for medical bills or a family holiday.

Whatever your purpose, you’ll want to start by calculating your available equity. As mentioned above, this is the difference between your remaining loan value and the property’s current market value.

You may want to consider engaging with a professional appraiser for a property valuation, or using an online home value estimator tool, such as those offered by OpenAgent or RealEstateView. Then hop onto your home loan lender’s website to login and view your mortgage balance.

You typically will not be able to borrow the full 100% difference, nor would you want to, as reducing loan equity to zero may make it challenging to service the loan. Generally speaking, a lender may allow you to borrow up to 80% of the value of the home, minus the loan balance.

For example, if 80% of the value of your property was $520,000, and you had $400,000 outstanding to pay for your mortgage, the usable equity for this property would be $120,000.

Unlocking your home equity

There are two main ways that homeowners can unlock the amount of equity they require in their property: through a home equity loan or by refinancing.

Home equity loan

A home equity loan may allow you to borrow the equity you need from your property similarly to a personal loan. Generally speaking, the interest charged on a home equity loan may be lower than those offered by personal loans. However, your property is typically used to secure the loan so if you were to default, the loss would be significant.

Refinancing

Your current lender or a new lender may allow you to refinance your current home loan to access the equity in your property. This involves increasing your loan amount to access the funds you need but repaying more on your home loan. Generally speaking, refinancing and increasing your home loan size may increase the amount you pay in monthly repayments.

It may be worth prioritising home loan lenders that offer refinancers competitive interest rates to help keep your household budget and ongoing repayments affordable. For example, Reduce Home Loans Super Saver Home Loan offers an interest rate of 1.79% for refinancers with a loan-to-value ratio (LVR) of 80% or less. At the time of writing, this is one of the lowest owner-occupier variable interest rates in the Australian market.

How to boost your home equity

It’s worth keeping in mind that new home buyers, whether they be owner-occupiers or investors, may not have built up enough equity through paying down their mortgage.

Unless the value of their property has increased significantly in a short window of time, and their LVR is less than 80%, new home buyers may need to consider waiting a few years to build up equity before they can unlock it. Otherwise they may not be approved to access this equity and/or have to pay costly lender’s mortgage insurance.

So, how can homeowners boost their equity quickly? There are a few strategies to consider, as long as they suit your financial situation and budget.

 

1. Increase your regular repayments

If your lender allows you to make additional home loan repayments without penalty, which Reduce Home Loans does for all its loan products, you may want to consider boosting the amount you make in regular repayments. Chipping away at your loan principal faster will reduce the amount owing on your mortgage, and increase the difference between it and your property’s value.

 

2. Make lump-sum payments

You may not just want to make additional repayments to help reduce your loan principal. If you come into any financial windfalls, such as a tax return or inheritance, making a lump-sum payment of these additional funds towards your mortgage can also help to lower the loan amount.

 

3. Renovate your property

Any renovations and improvements you can make to your property that may increase your property’s value could help to boost your available equity. There are several home projects you could consider taking up to do just that, including building a granny flat or renovating your kitchen or bathroom.

It may be a catch-22 for some homeowners, as to afford the renovation costs you may want to access the equity in your home, but you cannot access the equity until the property value increases. In this instance, it may be worthwhile holding off until your loan amount decreases further.

 

To learn more about refinancing to access the equity in your home loan, consider reaching out to our team of experts at Reduce Home Loans on 1300 733 823.

 

Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement

 

1300 733 823

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.