What Is Home Equity?

Equity is the difference between your property’s current-day value and the amount still owing on your home loan. You don’t need a Home Equity Calculator to figure it out either; If your home is valued at $800,000 and you have $600,000 owing on your home loan, your home’s equity is $200,000.

Equity builds over time in two ways: as your property grows in value and as you repay your home loan, meaning that, assuming you meet mortgage repayments and your home grows in value, your equity will only increase with time.

To build equity, you need to widen the gap between your property’s value and how much you owe on your loan. This can be done by

Both will typically happen naturally, as properties – particularly homes – tend to trend upwards in value over time, and as you make regular rental repayments, your home loan will go down. There are ways to generate greater equity. Such as

Renovations or improvements to your home. You can dip into your equity to make improvements to your home, but make sure the equity gained is worth the cost of the improvements.
Making larger, or more frequent, repayments. By switching to fortnightly repayments, you may pay off a little extra each year. Why? There are 12 months in a year, but there are 26 fortnights.

Once again, if your home is valued at $800,000 and you still have $600,000 owing on it, your equity is $200,000. You can use 80% of this equity, meaning you can put up to $160,000 down as a deposit on your investment property. This would outright cover a deposit on an investment property that costs the same as your home, $800,000. Keep in mind you’ll still have to account for all the regular costs associated with purchasing a home.

Equity can also be used for renovations, improvements and refinancing. Looking to access the equity in your home? Contact Strawberry Finance today to kickstart your property investment journey.

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