If you’ve paid off a good part of your home loan, or your property’s value has increased, you may have access to a lot of equity. Find out if it’s worth unlocking this equity to build even bigger opportunities.
What is equity?
Equity is the difference between the market value of your property and the amount you still owe on your home loan.
It’s important to understand the difference between equity and useable equity – as you can’t use all of your available equity.
What is useable equity?
Banks will usually lend up to 80% on the value of your property, provided you can meet the repayments. Useable equity is the difference between this amount and the existing lending you have against the property.
To figure out how much you can borrow against your useable equity, your bank will likely ask about your income, age, how many kids you have, additional debts, and many other factors.
How to calculate your equity
To get a better idea of how much equity you have, check out our handy home equity calculator. The calculator gives you an idea of how much you may be able to increase your borrowing by, based on the equity in your home.
Ways to build equity in your home to increase the value of your property
Get a feel for how much it will cost by collecting quotes and speaking to others in your area who have recently renovated.
This will give you an idea of the costs you might not have thought about, as well as help work out the style and level of quality you’re hoping for.
Make larger or more frequent repayments
This can help build useable equity by reducing your loan balance.
Our loan repayments calculator can show you how much time and interest you can potentially save by changing your repayments. First, you’ll need to check if this option is available on your current loan.
Just note that for fixed rate loans, it might cost you to make changes to the loan or repayments prior to the expiry of the fixed rate period.
Make lump sum payments
If you have come into a lump sum of money, why not put it straight into your home loan? Again, you'll need to check if this option is available.
Link your transaction account to 100% offset
You can reduce the amount of interest you pay by linking an eligible transaction account to a 100% offset facility.
This can help you save on interest charged on your existing loan – and build equity in your property faster than you think.
Using equity to improve your lifestyle and wealth
Renovate your home
Chances are your home has increased in value, and you’ve reduced your loan balance over time.
If your home needs a facelift and renovations are on the agenda, it can be worth unlocking the useable equity, and borrowing more to make the changes.
Invest the money
If your property has increased in value, the amount of equity you could divert into investments could create wealth opportunities.
This means you could make purchases that will increase your asset base – such as investment properties and shares.
Smooth out life’s bumps
Life events like buying a new car, taking a holiday, or paying for education expenses can make us feel stressed about managing the costs.
However, using the equity you have in your home can be a way to ease the financial burdens that life throws at you.
Borrowing against your equity can help you pay off the loan over a longer period of time, reducing the impact of large one-off payments.
You’ll also need to cover the interest charged every month, with the amount borrowed to be paid off at some point in the future.
Term loans are another possibility, but these are best discussed with your banker.
Above all, remember to play it safe
Unlocking all your equity to improve your lifestyle or wealth will increase your level of risk. That’s why it’s always a good idea to consider how much lending you take on.
To make sure you have a plan in place, it’s best to speak with an expert. Simply contact one of our financial advisers – they’ll help you figure out the best solution for your situation.
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The information in this article has been written by Michael Sloan from The Successful Investor. While Mr Sloan has been careful to ensure the information is correct and accurate, Mr Sloan’s views are his own and do not necessarily represent those of National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence 230686 (NAB). This information should not be relied upon as financial product advice as none of the information provided takes into account your personal objectives, financial situation or needs. NAB recommends seek the counsel of an independent financial advisor before making any investment decision.
Always consider what the best solution is for your situation and be aware of what those commitments will mean to your lifestyle.