If you’re a homeowner who has diligently paid off your mortgage over the years, you likely have accrued substantial equity in your property. This equity can be a valuable asset that opens doors to various financial opportunities, such as acquiring an investment property, renovating your current home, or achieving other monetary goals.

In simple terms, home equity is the variance between the market value of your property and the outstanding balance on any loan secured by that property. Calculating your home equity involves assessing two critical components:

1. Market Value:

The current value of your home in the real estate market, influenced by factors like location, size, condition, and property features. This value can fluctuate based on market conditions, and banks often determine it through third-party valuers from their approved panel of valuation firms.

2. Outstanding Loan Balance:

The remaining amount you owe on the loan secured by your home. This can be calculated by subtracting the total payments made from the initial borrowed amount.

The remaining amount you owe on the loan secured by your home. This can be calculated by subtracting the total payments made from the initial borrowed amount.

Equity Home Loan Types:

Eligible borrowers can leverage their accumulated home equity through two types of equity home loans:

1. Lump Sum:

Borrowers can access a lump sum from their current bank, repaying it over a newly agreed period.

2. Line of Credit (LOC):

Borrowers can draw from their current lender up to a specified limit, making adjusted repayments based on the borrowed amount via the credit line.

These loans allow homeowners to use their home equity as collateral, providing them with additional funds to fulfill diverse financial needs.

Leveraging Home Equity for Investment:

Leveraging Home Equity for Investment:

– Applying for an equity home loan to borrow against accumulated home equity.

– Using home equity instead of a 20% cash deposit for purchasing an investment property.

– Many investment property loans are structured around accessing home equity.

– The amount of equity accessible varies among lenders, with some allowing up to 80% of the property value.

Accessing Home Equity

1. Determining Available Equity:

Estimate your equity by deducting the loan balance from the estimated market value. Real estate agents or comparable sales can help gauge property value. Banks may use valuers to determine property value.

2. Assessing Accessible Equity:

Accessible equity may not be the full amount, considering your ability to handle additional repayments. Factors like income and financial situation impact the amount of equity you can unlock.

3. Researching Loan Options:

Research and compare loan options with a senior mortgage specialist. Evaluate current home loan terms against other solutions from your lender or different banks.

4. Understanding Fees and Costs:

Be aware of fees involved in equity home loans, including Lender’s Mortgage Insurance (LMI) and application or government fees when switching lenders. Mortgage brokers guide you on associated costs.

5. Loan Application and Settlement:

Once a suitable loan option is identified, mortgage brokers handle paperwork submission to lenders for underwriting and approval.