*iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Auscred Services Pty Ltd (Australian Credit Licence 442372). iSelect provides a referral to Lendi Pty Ltd, a Credit Representative of Lendi Group Finance Pty Ltd (Australian Credit License 442372). iSelect Mortgages Pty Ltd receives a commission from the Licensee for each new customer account created and for each home loan submitted through this service.
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Put very simply, equity in your home loan refers to the portion of your property that you own. Over time, your equity is likely to increase as you make home loan repayments. If the market value of your home increases, so does your equity.
So, equity is the difference between your home’s current value and what you owe on your mortgage. If you have a home worth $500,000 and a remaining loan balance of $100,000, you could have $400,000 in home equity.
Market increases help build a lot of equity in Australian homes. When the market grows, you can build equity if your property rises in value. However, there are other ways in which you can build more equity in your home. These can include:
An offset account is a transactional bank account linked to your home loan. Any funds in here offset the amount on which interest is calculated. For example, if you have a home loan balance of $200,000 with $20,000 in an offset account, you’ll only be charged interest on $180,000. Since you’ll be paying less in interest, you may have more money to put towards repaying your home loan, therefore increasing home equity.
You can calculate an estimate of your home equity by taking the current market value of your property and subtracting the outstanding balance of your home loan. The balance left over is your equity, and you may be able to borrow against this. Remember, equity can vary over the years, due to repayments, any home improvements you make, as well as fluctuating market prices etc.
In this article, we're talking about buying a second property with your equity as security. In many ways, home equity becomes a bit of a nest egg for people who have owned their homes for a long period. Some of the other uses for your home equity could include:
Generally speaking, home equity loans are quite beneficial. Some of the major pros can include:
At iSelect we’ve partnered with Lendi to help make it easier to find a great deal on your home loan*. Click here to get started comparing from a range of lenders online, or give Lendi a call on 1300 186 260.
Last updated: 10/05/2022