Leveraging home equity: Tips to boost your financial freedom.

Home equity represents the difference between your property’s market value and the balance remaining on your mortgage. Discover how accessing your home equity can open a world of financial opportunities.

What is home equity?

As a homeowner, you build equity in your property over time by paying down your mortgage and benefiting from any increase in property value.

How much equity do I have in my home?

To determine your home equity, subtract the amount you owe on your mortgage from your property’s current value. For example, if your home is worth $650,000 and you owe $250,000, you have $400,000 in equity.

How can I use the equity in my property?

Depending on your income, expenses, and remaining mortgage balance, your lender may allow you to borrow additional funds using your home as collateral.

It's important to seek advice from your financial advisor and a registered tax agent before making such decisions.

Most home loans can finance up to 85-95% of your property's value. However, if your equity is below 20%, you may need to pay Lenders Mortgage Insurance (LMI).

If you have a FinancePath home loan, have built up equity, and can manage the repayments, you might access your equity through:

1) Apply for a supplementary loan

You could opt for a supplementary loan, choosing a FinancePath loan that meets your needs. This additional funding can be used for various purposes based on your requirements.

2) Refinance your current home loan

Refinancing your home loan can help you access your equity. Speak with our Mortgage Advisers about how you can leverage your home’s equity.

Examples of using home equity

You can utilize your home equity for various purposes:

1) Investing in property

Unlocking your home equity can help fund a deposit for an investment property, potentially allowing for negative gearing depending on your situation.

2) Renovating your home

Using equity to renovate can not only tailor your home to your needs but may also increase your property’s value.

3) Investing in shares or other investments

Some homeowners use equity to invest in shares, bonds, or managed funds. These investments come with risks, so it's crucial to get financial and tax advice before proceeding.

How does equity work when buying a second home?

When buying a second home, your accumulated equity can serve as a deposit, potentially allowing you to purchase with minimal cash up front. Depending on your financial situation, you might refinance or apply for a supplementary loan, using your home as security. However, borrowing more increases your repayment obligations and the risk of losing your home if you default. Always consult your financial advisor and registered tax agent before proceeding.

How to build equity in your home

There are two primary ways to build home equity:

1) Reduce your mortgage balance

Paying down your mortgage faster increases your home equity. Explore tips on how to pay off your home loan faster.

2) Increase your property value

Owning your home over time may result in capital growth. Renovations and improvements can also boost your property’s value. For an estimated property value, request a free FinancePath Property Profile Report.

What to consider when using your equity

Borrowing against your home’s equity increases your repayment amounts and risk. Before proceeding, consider:

• If the loan term will be extended
• Your ability to make repayments if interest rates rise
• Having sufficient emergency funds outside of your home equity

Always consult your financial advisor and registered tax agent to understand your specific circumstances.

For any questions, talk to our Mortgage Advisers about how you can take advantage of your home equity.