The more equity you have in your property, the more value you may be able to unlock. While you naturally build equity as you pay off your home loan, there are a few things you can do to help increase it a bit faster – and put your home’s value to use sooner rather than later.
What is equity?
Equity is the difference between the market value of your property and the amount you owe on your home loan. Building up equity is useful as it can give you access to additional money that you can then use to build more wealth, get on top of debts or even buy that second home you’ve always dreamed of.
It’s important to be aware that even if you have a significant amount of equity in your home, you may not be able to use it all. The amount of usable equity is decided by your lender and based on a number of factors, including your loan to value ratio and whether you can make the additional repayments.
What can I use my home’s equity for?
When you borrow against your home’s equity you will need to explain what you plan to use the money for. For example, you can use your home’s equity to pay off debts, put down a deposit on a second home or investment property or you may be able to borrow against it to renovate or otherwise improve your home. Some lenders (like Bluestone) will allow you to use your equity for things like paying off ATO debt, but others won’t.
How to increase your property’s equity
If you want to build equity in your home loan faster, here are five things that can help.
- Make extra repayments on your home loan. By increasing your regular loan repayments, even by a relatively small amount, you can build up more equity over time and even pay off your home loan faster.
- Get another valuation on your home. If it’s been a while since you got a valuation, it might be time to get another one – especially in today’s market. Because your home’s value dictates how much equity you have, getting your property revalued in a higher market can give you more equity – if the valuation comes out higher than when you originally bought your home. Also, different valuers may price your property differently so it can be worth getting a few valuations to get a clear idea on what your property is worth.
- Increase the value of your property by renovating. Because your equity depends on the value of your home, increasing your home’s value can give you more equity. Depending on your property, you may be able to add value by painting, renovating the kitchen or bathroom, landscaping and fixing up any ongoing issues.
- Use an offset account. An offset account can help you reduce the interest payable on your home loan so you can pay off the principal amount faster, building more equity in the process.
- Put extra cash into your home loan when you can. Next time you get that tax refund, or work bonus why not consider putting it into your home loan? Regular injections of cash can help you increase your equity and reduce the size of your loan and if they’re not part of your usual income you’re less likely to miss them. Just make sure your home loan allows for additional repayments.
How to access your extra equity
Once you’ve built up the equity in your home loan, the easiest way to access it is through a home loan increase or top-up. You can find out more about the home loan top up process here, or complete our loan increase enquiry form here to get started.