How to make the most of your home’s equity

Little Wooden Houses

It might not feel like it, but Australians have never been as wealthy.

Household wealth skyrocketed by $590 billion over the September 2021 quarter to hit a record $13.9 trillion, according to the Australian Bureau of Statistics’ most recent figures

Wealth per capita rose to a record high of $540,000. Two years earlier in September 2019, before the pandemic, it was $428,500 – a stunning increase of 26%.

You don’t have to look far to see what’s driving that surge in wealth.

Exhibit A: the booming property market.

Soaring property values have seen the mean price of an Australian home rise by over $200,000 (30.7%) to $863,700 in the same timeframe. 

And while higher home values are a bad thing for buyers, it’s great news if you’re a homeowner. Because as property prices soar, so does the amount of equity in your home.

What’s equity?

Equity is the market value of your home minus the outstanding balance on your mortgage.

For instance, let’s imagine your home is worth $800,000 and you owe $500,000 on your mortgage. Your equity would then be $250,000 ($800,000 – $550,000).

Equity is created in two ways:

  • When you make repayments on your home loan
  • When the value of your home increases

How to tap into your equity

So you have equity in your home. Fantastic. This then begs the question: how do you access that equity?

Depending on your circumstances, you could potentially borrow against the equity, although you won’t be able to take out a loan equivalent to all your equity.

That’s because most lenders want you to have some skin in the game. So, as a general rule, they’ll let you borrow up to 80% of your home’s value, minus the outstanding house loan.

Using the above example:

  • 80% of your home’s value = $640,000
  • Outstanding home mortgage = $500,000
  • Available equity = $140,000

How to make the most of your home’s equity

You can technically use equity for anything you want – be it home renovations, paying down debt or even going on holiday.

That said, one of the best ways to make the most of your home’s equity is by building wealth. And you can do that by investing in property.

Of course, to build real wealth and secure your financial future, you’ll likely need to own more than one investment property.

Luckily, equity can help you out there too:

  • Buy your first investment property using your home’s equity as a deposit
  • Over time, the value of the investment property increases
  • Pull out this equity and invest in another quality property
  • Repeat the process

A finance broker can give you expert advice

Of course, mortgaging house after house isn’t without risk. So you should always give yourself some financial breathing room in your calculations and never take on debt you can’t repay.

That’s why it’s a good idea to get expert advice from a home loan mortgage broker or financial adviser to see if the strategy makes sense for you.

Want to tap into your home’s equity? NMC Finance is an experienced mortgage loan broker and can help you explore all your options. Contact Nathan Coad on 0498 766 639 or nathan.coad@nmcfinance.com.au to find out more.

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