Taking out a variation on your home loan could unlock one of your most valuable resources.
It wasn’t so long ago that the only way to access home equity was by selling a much-loved home. These days, home loans have made it a lot easier to tap into home equity and it’s giving home owners greater opportunities to fund personal goals.
Steady growth in home equity
In case you’re not familiar with the term, ‘home equity’ refers to the difference between your home’s current value and the balance of your home loan. If your home is worth $700,000 for instance, and there is $200,000 remaining on the loan, your home equity comes to about $500,000.
Many home owners could have a lot more equity at their disposal than they realise. Australia’s residential property market has historically been a solid long term performer, and industry figures show that across the nation’s combined state capitals, property prices have risen by around 5.1% annually over the past ten years1.
If you have owned your place for several years, you may have a healthy pool of equity – money that could be put to work growing your wealth.
A useful funding option
The big question for many home owners is how to access home equity. If you have sufficient equity in your home, many lenders will allow you to increase your home loan so you can invest the equity as you choose – be it for a rental property or other investments, or channeled into lifestyle goals like a home renovation.
One of the key pluses of accessing equity in your home is that you could access funds at a low home loan rate.
While increasing your loan could be a useful tool you need to be sure that you can comfortably manage the additional repayments. Speaking with your bank or mortgage broker is the starting point to knowing how much home equity you could tap into and whether it’s the right option for your needs.
1CoreLogic RP Data March Hedonic Home Value Index Results Released: Wednesday, April 1, 2015 http://www.corelogic.com.au/resources/pdf/indices/indices-release/2015-04-01-monthly-indices.pdf