How to Access the Equity in Your Home

Across Australia, strong growth in house prices is being fuelled by record-low interest rates, increased buyer demand and fewer listings. For many homeowners, this means a strong uplift in equity in their home – an enviable position. If you’re not familiar with the concept of equity, it’s simply the value of the property minus any outstanding loan.

The great thing about real estate is that you’re able to access that uplift in equity to put towards a deposit on another property. Those funds can also be used towards your current property to increase its value even further by renovating or subdividing the property. 

What is Useable Equity?

Even if your property has increased in value, there is no guarantee that you’ll be able to access all of it. Most lenders will allow you to borrow you up to 80% of the property’s value. 

In some situations, it may be possible to access more than that, however you would then be required to get Lenders Mortgage Insurance, which could potentially limit your lending options. 

Let’s run through an example to illustrate how this would work. For example, on a property worth $1 million with an 80% LVR (Loan-to-Value ratio) and a $300,000 mortgage, your usable equity would be $800,000 (80% of $1 million) minus your mortgage of $300,000, which would leave $500,000 of available equity. 

How to Access Equity in Your Home

If you want to access the equity in your home, the most common way is through refinancing. Refinancing essentially means taking out a new loan and paying out your old loan. During this process, the lender will get a bank valuation, which will ideally show an increase in the value of your property.

Other ways to access equity include cash-out loans, topping up your existing loan or even using a line of credit. That being said, it’s best to speak to a mortgage broker about your personal situation.

Another important consideration that is often overlooked is that you will generally have to be able to service any additional equity that you want to redraw from your loan. Even though your home may have increased substantially in value, your income will need to be high enough to service the additional debt on a larger loan in order for you to be able to access the equity.