When you’re shopping for home loans and looking around for properties, you’re not just aiming to create a pleasant abode for you and your family to live in. You have another goal in mind – to grow the equity in your home, which you can unlock for various purposes as you steadily pay off your mortgage.
Equity, for those not in the know, is simply the difference between how much your home is worth and what you still have owing on your mortgage. Unfortunately, short-term price growth is not always going to ensure this, as Australians recently found out with the release of Australian Bureau of Statistics (ABS) home price data on November 11.
“[P]rice growth is easing to a much more sustainable rate,” said Shane Garrett, Housing Industry Association Senior Economist.
Failing this, what are some good ways to grow the equity in your home?
Increase your mortgage repayments
You don’t simply have to wait for your property to increase in value for your equity to grow. You can instead look to minimise your home loan debt by increasing the frequency and amount of your mortgage repayments.
You’re probably making monthly repayments right now. Why not switch over to fortnightly ones? Or why not make arrangements with your lender to pay a bit extra instead? Just be sure to budget accordingly, and remember some lenders charge fees for this.
Put down a higher deposit
Generally, in Australia it’s recommended that you save 20 percent of a property’s value as a deposit. While you can put down a smaller amount, borrowing over 80 percent of a property’s value requires you to take out lenders mortgage insurance, taking money away from what you could be putting toward repayments.
Consider instead putting a bigger down payment on the property, increasing your equity and reducing how much interest will build up.
Choose the right home loan in the first place
Like the property itself, there’s no ‘one-size-fits-all’ home loan. Home loans from different lenders can have all kinds of interest rates, terms and conditions that can increase or decrease the amount you end up owing on your mortgage. Do a home loan comparison to help take out some of the guesswork and narrow your search to something that’s a good fit for your circumstances.
Making alterations to your property, from minor repairs to huge, eye-catching additions, can be a great way to bump up the value of a home. Renovating your bathroom, for example, could see its final sale price climb substantially, increasing your equity. It doesn’t all have to be dramatic though – even replacing your kitchen whiteware with new models can have an impact. But before you pull on the tool belt, get some advice from a local real estate about how to best spend renovation dollars and avoid overcapitalising on the property.
Hold on to your property
Short-term price growth isn’t necessarily going to net you increased equity. But it’s still good to keep in mind that property, by its very nature, tends to increase in value the longer you hold on to it. Data compiled by analyst Philip Soos shows that, since 1950, house prices in Australia have been steadily rising, with peaks and troughs along the way.