Record-low interest rates, strong buyer demand and low listings continue to fuel strong house price growth across the country.
That means that many homeowners are now sitting in an enviable position, having seen a strong uplift in equity. The equity in your home is simply the value of the property minus any outstanding loan.
The great thing about real estate is that you’re able to access that uplift in equity to put towards a deposit on another property. It’s also possible to use those funds to put towards your current property to increase its value even further through things such as a renovation or even a subdivision where possible.
Just because your property has increased in value doesn’t mean that you’ll be able to access all of it.
Most lenders will lend you up to 80% of the property’s value. While it might be possible to access more than that, you would then be required to pay Lenders Mortgage Insurance, and that would potentially limit the number of lenders.
For example, on a property worth $1 million with an 80% LVR and a $300,000 mortgage, that means your usable equity would be $800,000 (80% of $1 million) minus, your mortgage of $300,000, which would leave $500,000, of available equity.
The most common way of accessing equity is through refinancing. When you refinance, you are effectively taking out a new loan and paying out your old loan. In this process, the lender will order a bank valuation, which will ideally show that your property has increased in value.
There are other ways to access equity, such as cash-out loans, topping up your current loan or even using things like lines of credit. However, it’s important that you speak to a mortgage broker about your personal situation.
The other important consideration when accessing equity that many people overlook is that you will likely have to be able to service any additional equity that you are wanting to redraw. Even if your home has grown substantially, if you are not earning a high enough income to service any debts on a larger loan, you will not be able to access the equity.