Thinking of using the equity in your home?
If you’re looking to buy an investment property or a new home, renovate your current home, start a family, pay your kids schools fees, go on a holiday, buy a new car, consolidate your debt or need cash to pay for a medical treatment, you may be able to access the equity in your home to fund this.
- Deposit Funding
- Debt Consolidation
- Investment Property
The valuation you get for your home is critical to the amount of equity you can access.
The first thing to note is that a valuation is done by a qualified valuer for the lender, and is not the same as a property appraisal you may get from a real estate agent.
The valuer will provide the lender with a conservative estimate of your property’s value. This is often lower than you expect! This is due to the valuation being based on an amount of money the lender may expect to get if the property needed to be sold in a distressed circumstance. Ultimately the valuation is used to limit the lenders risk, not give you a market valuation of how much you would get when you sold the property.
As such, the amount of equity you can access may be different to what you think, so it’s important to start this process early so you can factor this into your plans.
So, how does a property valuation work?
A valuer will assess a property’s value based on a number of internal and external criteria including:
- The structure and condition of the home
- Local council zoning
- Any planning restrictions
- The size of the property
- Vehicle accessibility and parking for the property
- The number and type of rooms in the home
- Fixtures, fittings and any improvements
They will look at these attributes in-conjunction with recent comparable sales in the surrounding area, as well as reviewing the current market conditions.
Once the report is prepared it will be given to your lender who will determine what your equity is and therefore how much of the value of your home you can access. Hopefully the equity amount the lender will release is enough to cover your plans!
Lastly, the cost of a valuation varies between $150-$300, however in some cases the lender will offer a free valuation as part of the home loan package. Chat to your broker however to determine the right loan for you overall.
When looking to access your equity the following loan types or features may be relevant. To find out what the right loan is for you give us a call on 1300 135 456, use web chat or fill in our contact form and we’ll give you a call when it’s convenient to you.
Line of Credit
A line of credit allows you to draw on funds as you need them up to an approved credit limit. Your minimum monthly payment is the interest charged on the outstanding balance each month. By taking out a line of credit on an existing property, it is possible to use any equity from that property to fund any of your purposes – such as buy another property or pay for your kids school fees.
Rather than a loan type there is a feature that you may want to consider when you refinance to access your equity. An offset account can be used to place the equity you have released. This will reduce your interest payments on the balance of the loan while the money is in the offset while still allowing you the flexibility to access the funds as you need them.
Ask a Broker
While the fundamentals of a home loan are similar when either purchasing or refinancing a home, there will be a number of different decisions you will need to make to access the equity in your property. Here are some questions you should ask your broker so we find the right home loan for your needs.
- How do I access my equity?
- Do I need to refinance my property?
- Will I need to have my property valued?
- Is it a good idea to add an offset account as a loan feature?
- I’ve heard about a line of credit – is this a good idea for me?
- Does a lender need to know what I’m doing with the equity?
- What paperwork will be required?
- How quickly can I get access to the money?
- Is now a good time to fix the rate on my loan?
There are a few questions to think about that will help you and your broker determine what home loan and features are right for you.
- Do you know how much equity you have available?
- What do you want to use the equity for?
- How much equity do you need access to?
- When do you need the money by?
- Is there a property purchase involved?
- Is the home loan you need the equity from in single or joint names?
- Who is your current lender?
- Do you want to stay with your current lender or are you open to looking at alternatives?
Equity Release – Equity release is when you convert the equity from your home into cash that can be used for any purpose.
We look forward to discussing your home loan needs soon.
We look forward to updating you with home loan news.