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Equity is the portion of your home’s value that you own. In short, it’s the difference between the current market value of your property and your remaining home loan balance.
So, equity is usually built by making home loan repayments or having your home increase in value. Value can be increased through renovations and improvements, or changes in the property market.
It’s simple to estimate your equity. If you subtract the amount owing on your mortgage, from the current value of your home, that should give you a good idea of what equity you have in your home.
For example, if your home is currently valued at $600,000 but you still have $200,000 left to pay on your loan, your equity is $400,000.
Equity varies over the years. Property values change, you pay more off your mortgage, or you may have done home improvements which increase the value of your home.
With a home equity loan, you borrow money against the existing equity that you have accrued in your home loan. The loan is typically secured against the value of your property.
In this article, we’re specifically talking about using the money you borrow to invest in something other than property. In this case, as the money is secured against your existing property, you can invest in whatever you choose. Obviously, careful consideration of any investments is advised.
Here are some other things that you may use your home equity loan for:
There are a few very positive advantages of home equity loans, these include:
The disadvantages of a home equity loan are generally applicable to almost any loan. Here are some things worth considering:
As mentioned earlier, there are ways to increase your home equity. If the housing market is rising, then often your home equity can increase as well. However, there are other things you can do to help your equity grow:
iSelect has partnered with Lendi to help you compare home loan products from a range of Australia’s lenders. Get started comparing home loans from 25+ lenders online the easy way, or give Lendi a call on 1300 186 260 (08:30-18:30).
Last Updated: 07/07/2022