Accessing your home's equity - Benefits, uses, and costs

Like many other homeowners, you may be wondering how you can access the equity on your home loan now with the valuation of properties continuing to grow.

Accessing equity can be a useful method to finance home renovations, improvements, or large purchases. A local Greater Bank Home Loan expert can help guide you through this process.

What is home equity?

Home Equity is the difference between the current market valuation of your property and the amount you still own on your home loan.

Let’s work through an example. Say your Lender will lend up 80% of the property value and your property is worth $600,000, and you owe $400,000. The available equity would be $80,000.

Is accessing your equity right for you?

Accessing your equity could be a great option if you are planning to make a long-term investment. Many homeowners access their equity for home improvements, such as renovating their kitchen or bathroom.

Another potential investing option is real estate; you could use your available equity to help with purchasing an investment property or consolidate other existing debt. Your equity can also be used if you need to make a large purchase, such as a car.

Advantages of accessing your equity

There are quite a few advantages to accessing the equity in your home:

• The main advantage is the process can be an easier and quicker option then restructuring your home loan.
• The additional funds you are borrowing to access your equity can be treated as an additional loan with its own repayment. 
• When wanting to access the equity in your home for a large purchase like a car or home renovations, it may be cheaper than applying for a personal loan. 

Disadvantages and risks of accessing your equity

While accessing your equity can be beneficial, there are some disadvantages and risks that you should consider:

• Sometimes the cost of accessing the equity in your home could outweigh the benefits. If you are considering increasing your borrowings, make sure you check you can afford the extra repayments and know what it will cost.
• You may be tempted to access as much equity as possible but beware the more you access, the more interest you will have to pay and the higher your repayments. The best strategy is to plan what you will need the money for, and not overextend your finances.

Accessing equity vs refinancing

While they may seem similar, accessing equity and refinancing are not the same thing. As we’ve discussed, your equity is the difference between what the current market valuation of your property and the amount you still own on your home loan. Refinancing is restructuring your current home loan. You could refinance your current home loan when accessing your equity, but this will depend on you and your circumstances. A local Greater Bank Home Loan expert can help guide you this process.

Considering accessing your equity? What do you need?

• The first thing you can do is talk to your lender or your potential lender and find out whether you meet their lending criteria.
• You can also prepare by creating a plan for what you are using the money for. This will help you avoid borrowing too much, and make sure your finances stay in check. If you plan on renovating, getting a few quotes before refinancing can give you a better idea of how much you’ll need. If you plan on using the money to boost your savings or to invest, it might be a good idea to develop a savings plan using a budget or savings calculator.
• If you are planning to refinance in order to consolidate high-interest debts, it may be a good idea to re-evaluate the way you use credit so that you are set for the future. If you are struggling with your debts, you can reach out to your lender who may be able to support you if you are going through hardship. You can also reach out to a not-for-profit financial counsellor who may be able to help you get on track. The Government’s Moneysmart website has more information about organisations you can try to contact.