Refinancing Your Home Loan to Make a Purchase

Accessing this equity may assist you with making another purchase.

But what is equity and what kind of purchases can it help fund? To help answer those questions and more, we’ve put together this handy guide to how it all works.

What is equity?

Put simply, equity is the difference between the value of the property and what you owe the lender. If you’ve paid off a considerable chunk of your home loan or your house has increased in value since you purchased it, you could be sitting on a reasonable amount of equity.

If you decide to refinance your home loan, your current lender, a new lender or mortgage broker will be able to calculate your usable equity, which is the amount of equity they will allow you to access.

What can you purchase with your equity?

Equity can be accessed for lifestyle improvements, such as the purchase of a car, travel, home renovations, an investment property and more. However, make sure you consider any tax implications once you redraw it.

What are the benefits?

There are many potential benefits to refinancing your home loan to access equity, including:

• Lifestyle affordability. Most people have dreams that they hope to achieve at some point in the future. Accessing equity means being able to make those dreams a reality.
• Improving your overall financial situation. If you use the funds to renovate your home, you could be growing equity by increasing the overall property value.
• Building an investment portfolio. Similarly, if you are accessing equity to purchase an investment property, you’re potentially building your wealth.
• Lower interest. Personal loans, car loans and credit cards are likely to have higher interest rates than home loans. Refinancing your home loan to make a purchase allows you to avoid these higher rates.

What are the drawbacks?

Despite these benefits, refinancing home loans to access equity isn’t for everyone.

Before you decide to go ahead, make sure you take the time to consider any possible drawbacks, including:

• Fees. It’s important to consider the cost of refinancing, as there may be fees associated with exiting your previous loan and applying for a new loan.
• More debt. It’s also essential to realise that you are increasing the amount that you owe the bank, which means you will be increasing your monthly repayments.

Where to start

A qualified mortgage broker can help you work out whether refinancing your home loan to make a big purchase is appropriate for your financial situation.

In the meantime, finding ways to pay off your home loan faster will help you continue to build the equity in your home, and increase your ability to achieve multiple financial goals at once.

Our team at iSelect have partnered with Lendi*, so we can help you compare a range of different providers on the market. Use our online tool to compare home loans, or give Lendi a call on 1300 186 260 (08:30-18:30).