Equity in your property is the difference between the market value of your property and the amount you owe on your home loan. As you pay off your home loan your equity can increase, giving you some options for further investment.
Building your equity
There are two main ways to build your equity – increasing your property’s value and/or paying your home loan off as fast as possible.
Increasing the value of your property can mean renovating or making small changes to make it more attractive to potential buyers and ultimately improve the market value of your property.
Making changes to your repayments can help pay down your loan sooner. Increasing the amount of your loan repayments can have a significant impact in reducing the amount of money you owe.
Another way to build equity is to consider an interest offset account. An offset account can be a transaction account linked to your home loan. The balance of the offset account is offset against the home loan debt, reducing the amount of interest owed and enabling the loan to be paid off faster.
Using your equity
Once you’ve built your equity up you may want to use it to renovate, make investments or purchase something else. Options to do this include:
- Repayment redraws
- A line of credit
- Reverse mortgage (for those aged 65 years or over - also known as equity release or equity unlock loans)
Remember that using your equity will increase the amount you owe so it’s important to think through the benefits and risks of using this money.