What does it mean to have equity in your home?

Equity is the difference between the current market value of your home, and what you still owe on it. Equity in your home can help you achieve your property goals.

How do you calculate total equity?

You can use a simple formula to work out the equity in your home. You will need a property valuation for an accurate figure, but if you know the current market value of your home, you can minus what you owe on your home from that value: Example: $680,000 (market value) - $300,000 (mortgage balance) = Equity of $380,000. Note: You can borrow up to 80% of the property value. If you need to borrow more, you will have to pay lenders mortgage insurance. A property valuation is an important factor in determining equity, and therefore your ability to purchase another property.

How to build equity in your home

  • Your equity increases when your property value goes up, and your mortgage balance reduces. Tips for building equity include: 

  • Making renovations and improvements to your home to increase its value. 

  • Making larger mortgage repayments. 

  • Saving money by opening an offset account, so your savings are offset against your loan balance, reducing the interest paid on your loan.

Using equity – how does it work?

After gaining a property valuation, (we will organise this for you) and assessing your ability to repay an investment loan, once approved we will take security over your home and your investment property. Depending on your situation, you may be able to borrow against the equity and take on an additional loan, or increase the loan you have currently.

What additional factors do I need to keep in mind?

Borrowing against the equity in your home is not always guaranteed. A lender will take into account a number of things, including your income, existing debts and whether you have dependent children. As with any property, the purchase price is only one component of the upfront and ongoing costs you’ll need to pay. Stamp duty, legal and conveyancing fees, and building, pest and strata inspection reports, can all be applicable and will need to be budgeted for when you do your pre-planning.

Things to consider

  •  How much will loan repayments increase by and can you afford them? Use our budgeting calculator to find out. 

  •  Do you have the savings to accommodate for government and additional costs?

  •  Who will manage your investment property and what rent will you charge? 

  •  Are you across the legal obligations that apply to landlords? 

  •  Will you be eligible for tax deductions? 

  •  Be aware of any restrictions on your home loan that can prevent you from making additional repayments or accessing the equity in your home. 

Talk to a Horizon Bank lending specialist today about how you could use equity for your next property venture.

Horizon Bank has a branch network spanning the NSW South Coast and Illawarra. Horizon Bank branch locations: Albion Park, Bega, Bermagui, Berry, Merimbula, Moruya, Nowra, Thirroul, Ulladulla & Wollongong.

 The content in this article has been prepared by Horizon Bank for general information only and it is not intended to be professional advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal, accounting, financial or other professional advice where appropriate, and consider the relevant Product Disclosure Statement and Terms and Conditions before deciding whether to acquire any products or services offered by Horizon Bank and/or its affiliated partners. We do not recommend any third party products or services referred to in this article unless otherwise stated and we are not liable in relation to them. Any links to third party websites are for your information and we do not endorse any content on those sites. Horizon Credit Union Ltd ABN 66 087 650 173 AFSL and Australian Credit Licence Number 240573 trading as Horizon Bank.