What is Home Equity?
Home equity is the difference between your property’s value and how much you still have remaining on your home loan. Often it can be easier to understand home equity through a worked example, so let’s run you through how equity plays out in a real-world scenario.
Let’s say your current property is valued at $900,000, and you’ve got $300,000 to pay off on your home loan. Your equity for this property would be $600,000, or the difference between your property value and outstanding mortgage.
One of the biggest reasons investors and homeowners are interested in home equity is this: you can access the equity in your property to fund your next property purchase.
In fact, equity can be used in a range of ways to help you speed up the growth of your property, help you get into your dream home or even renovate your existing rental property. Here are three reasons you might access your home equity:
- You can use equity to fund your first (or next) property investment: by drawing on the equity in your current home, you can skip the need to save up thousands of dollars for a deposit and refinance your loan instead.
- You can use equity to fund home renovations: if you want to add value to your home or rental property through renovations, you can use equity to fund these renovations (rather than taking out a new loan or using your personal savings).
- You can use equity to consolidate your debts: if you’re paying off multiple debts or loans, you may be able to combine these debts into an equity loan (often at a lower interest rate) to pay down these liabilities sooner.
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