Building wealth and property portfolios is becoming more common practice in Australia. While owning your own home still tops the Australian dream, once people settle into their existing home loans, have their repayments running smoothly and have paid off a large chunk of the mortgage, they often start looking to further capitalise on their initial investment.
Home equity is one such way that home owners can build on their current wealth and add to their property portfolio.
What is equity?
Putting it simply, equity is the difference between what your home is worth and how much you still owe on it.
So if your home is worth $800,000 and you still owe $200,000, then your total equity is $600,000.
What is a home equity loan?
A home equity loan is a loan which allows you to use some of the equity built up in your home and turn it into a ready source of funds by using it as collateral.
For example, current home owners may use some of their equity to invest in a rental property. Rental properties are a popular source of investment as they can provide capital growth, rental income and tax benefits, such as negative gearing.
Another popular reason for home equity loans is to carry out home renovations when you don’t have access to the required funds.
Note that borrowing against your house and using it as security, will also reduce the equity of your home. In Australia this is also known as a line of credit and is commonly used for renovations and investment purposes.
How much can I borrow against my home?
This depends on a few factors, mainly assets, financial circumstances and credit history.
While borrowing against your home is common, it’s still a risk on its own so be sure to manage any debt with care.
Search and apply for a home equity loans from some of Australia’s leading lenders at RateCity.com.au