Many people are aware of their home equity but do not understand very well how it is calculated and its other uses. Basically, equity is the difference between a property’s current market value and the outstanding balance of any debt held against it. It is an asset from a homeowner’s point of view and it can increase over time as the property value rises and the loan balance is paid off. Only when a home loan is paid in full can the homeowner claim the property as his very own.
As an example, if your house is worth $550,000 in the current market and you still have a balance of $200,000 in your mortgage loan, your available equity is $350,000.
First-time investors should know that they can use the equity they have accumulated in their current property to purchase an investment property. It is possible to use your home’s equity in financing another property purchase including stamp duty and settlement fees. A homeowner, however, still needs to prove to the bank that he or she can afford to repay the entire loan repayment amount which covers both the previous mortgage and the new one.
How to Build Your Equity
Your home generally builds its own equity through time as its value appreciates. A property’s value increases when improvement projects exist within the area and when the real estate market is in a healthy state.
Another way to improve your equity is by paying down the balance of your mortgage loan. In standard loans, monthly payments go toward the interest and principal but as repayment to your principal increases, so does your equity.
In an interest-only loan, the same process applies although you may need to make extra repayments to lower your debt.
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By Wendy Chamberlain
Copyright 2018 | All Rights Reserved
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With a passion for all things real estate spanning over 20 years, Wendy loves that her role as a Buyers Agent or Sellers Advocate gives her buying and selling clients an experienced voice they can trust when it comes to negotiating to buy or sell something as important as their home or investment. Wendy considers it a privilege to be asked to help others realise such an important goal as home ownership and to be trusted with that honour. Get in touch today via www.wendychamberlain.com.au for a no obligation chat about how Wendy can work with you and help you save time and money to secure your new home sooner.