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5 Ways To Make The Most Of Your Home Equity

One of the most powerful elements of property investing is that you can access the equity you have in your current property to continue to invest and grow your portfolio.

It’s a misconception that you need to have huge sums of money to grow a large portfolio when in reality, you just need to wait for the natural growth that occurs over time and leverage the equity that has been created.

Table of Conntents

1. What is Equity?

2. Accessing Equity

3. What is a home equity loan?

4. Renovating your house obtaining

5. Use your equity as a deposit on an investment property

6. Home loan top-up

7. Business expenses

8. Invest in the share market

9. Your home equity is your choice

What is Equity?

Equity is simply the market value of your property, less the money you owe to your lender.

Abacus Finance Example:

John’s current property is worth $500, 000 and he has a mortgage of $300, 000 remaining on the property, therefore he has $200, 000 in equity that he can use and continue to invest. If the value of the property continues to grow $600, 000 that would mean the equity he has to invest will be $300, 000. This highlights the power of capital growth he has gained which can later be used to develop his property portfolio even more.

Disclaimer: This case study is solely for educational purposes

These hypothetical case studies are provided for illustrative purposes only and do not represent an actual client or an actual client’s experience, but rather are meant to provide an example of the Firm’s process and methodology. An individual’s experience may vary based on his or her individual circumstances. There can be no assurance that the Firm will be able to achieve similar results in comparable situations. No portion of this article is to be interpreted as a testimonial or endorsement of the Firm’s investment advisory services and it is not known whether the hypothetical clients referenced approve of the Firm or its services.

Accessing Equity

The first step in accessing the equity you already have in your home is to get your property valued. It’s important to get it valued by an independent valuer who works with a range of lenders. Your Abacus Finance mortgage broker will be able to guide you through this process. Similarly, they can help to structure your loans in a way that is most suitable for your financial situation. For instance, you might want to cash out a portion of your equity and leave it in an offset account to use as a deposit on an investment property. This can be at a later date

It’s worth noting that to access the equity in your home, you still need to meet the standard requirements from the lender when applying for a home loan. Mainly, that means you will need to be able to service the loan based on your current income and expenses without any undue hardship.

What is a home equity loan?

By using your home equity as collateral, you can borrow a series of loans without having the requirement to sell your property. Most individuals use this type of loan to renovate, buy an investment property or invest in the share market. 

We will further discuss some of the most uses for a home equity loan: 

Uses for home equity

1. Renovating your house obtaining

Funding for your home renovation in advance can help you work out how much you can spend, so you can stick to your budget.

That’s why you may be able to use home equity to help fund your renovation project. Ideally, the renovation should help to increase the property’s value in turn increase home equity.

2. Use your equity as a deposit on an investment property

Examining the previous Abacus Finance example, the property was worth $500, 000 with a $300, 000 mortgage, with $200, 000 in equity. It’s important to keep in mind that not all lenders will allow full access to these funds. They will consider your income, living expenses, debts and other factors.

These funds can then be used to pay for the deposit on another property as well as additional costs such as stamp duty, and other costs associated with the purchase.

3. Home loan top-up

A good way to access extra cash is to get a home loan top-up. If you have equity in your home and the ability to make extra repayments, your lender may increase your existing home loan limit to fund a variety of expenses.

4. Business expenses

Current business owners looking to grow their businesses may consider using their home equity to meet their business capital needs. There’s a potential to save interest by taking out equity in your home instead of opting for a business loan.

5. Invest in the share market

When looking to grow your wealth portfolio, you shouldn’t just limit yourself to the property market. You could invest your home equity into the share market, think about the range of managed funds or the opportunity to buy bonds. Keep in mind though, all these options have different levels of risks attached to them, and careful considerations should be made before finalising any decisions. Using your home equity to aid your wealth creation strategy can be a smart and rewarding move.

Your home equity is your choice

Our team of mortgage brokers at Abacus Finance can help work with your chosen lender to determine not only how much equity you can access, but will also be able to set a pre-approval limit for your next purchase.

Over time, we know that property is an appreciating asset and when properties values increase, you will be creating additional equity that you can use to continue to invest. 

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.