With home loan rates at record lows and property prices still growing in many parts of Australia, it’s likely if you own a home that your equity in it is growing.
Firstly let’s define what equity is. Equity is the difference between the value of your property and how much you owe on it. A pretty simple equation!
Remember however that if you want to access more than 80% of your property’s value you may need to pay Lenders Mortgage Insurance (LMI). As such your accessible equity is really 80% of the value of your home minus how much you owe on it.
Let’s take a look at how equity can build in your home over time:
Original loan amount: $450,000
Property purchase price: $615,000 LVR = 73%
Todays loan amount: $350,000
Current property value: $950,000 LVR = 37%
In this scenario, your current usable equity is $410,000.
If we follow with this example, it may be possible for you to access up to $410,000 to fund a renovation, buy an investment property, pay the kids school fees or even go on holiday, as long as you can meet the lenders requirements and be able to service the increased loan debt.
Using equity from a home loan to fund these projects or expenses can be a cost effective way to do so compared to a personal loan or credit cards.
When looking to access your equity it’s a good time to assess the market and determine if your existing loan and lender is still the right solution for you, or if an alternate lender can offer a better interest rate or package. When you’re increasing the size of your home loan, reducing your interest rate as much as possible will save you a considerable sum over the life of your new loan.
How to Apply
Once you have decided to access your equity, here’s how you do it:
Chat to a broker – Have a chat with your broker and discuss your requirements. They will then source the most suitable offers from a vast range of lenders, and in consultation with you determine which is the right solution for your needs.
Make your application – You’ll need to get documents together confirming the incomes of all applicants for the past couple of years. As well as this you’ll need home loan statements and statements for any other debts being consolidated. Lenders will also need to verify identity through documents such as your drivers’ license and passport. For more information on what is required take a look at 4 Tips To Get Your Loan Approved Quickly.
Home valuation – Lenders will require validation of the market value of your home when they assess your loan application. They might send a valuation consultant to your property if there’s not enough sales data available for your particular location. Once the report comes back the lender will confirm how much usable equity you have in your home loan, and therefore how much they will be willing to let you access.
Loan documents drawn up – The timeline for this varies lender to lender but allow three weeks for finalisation of all the paperwork.
Loan drawdown – Depending on the arrangements you’ve made with your lender and the purpose of your new loan, the money may be made available in your nominated bank account, or placed into an offset account for you to access.
To chat to an Online Home Loans broker about accessing your equity, call us on 1300 135 456, web chat or fill in the Contact Us form and we’ll call you back.