Equity Home Loan

What is an equity home loan?

If you own a home and have been paying its mortgage for years, chances are you’ve built up reasonable equity. Over time, you can use this equity to buy a new investment property, renovate the same home, or achieve other financial goals.

Simply put, your home equity is the difference between the market value of your home and the balance you owe in any loan secured by the same property.

Estimating your home equity involves 2 key components:

Market Value

It is your home’s current value on the real estate market and varies depending on location, size, condition, and property features. Your property value may fluctuate or increase over time depending on market conditions.

The banks may determine the value of your property through a third party valuer who are on their panel of approved valuation firms. 

Outstanding Loan Balance

This refers to the remaining amount you owe on the loan secured by your home. You can find your outstanding loan balance by deducting the total payments you’ve made from the initial amount you borrowed.

Simply deduct your outstanding loan balance from the property’s market value to calculate your home equity. Say you have a property currently worth $300,000 on the market, and you still owe $200,000 on your mortgage. Your home equity would be $100,000 ($300,000-$200,000).

This asset can be a valuable resource when it comes to property investment. That’s where equity home loans come into frame.

There are 2 types of equity home loans available for eligible borrowers:

  • Lump Sum: You can reborrow an approved lump sum from your current bank and repay more over a new agreed period.
  • Line of Credit (LOC): You can reborrow from your current lender up to a designated limit and make adjusted repayments based on the amount borrowed via the credit line.

Either way, homeowners can leverage their accumulated home equity as collateral and borrow more money to meet various financial needs.

Leveraging your home equity for investment

Another excellent strategy in utilising your assets is using home equity to purchase another property or renovate your home and increase its market value. One way to tap into this asset is by refinancing.

  • Applying for an equity home loan lets you borrow against your home’s built-up equity.
  • You can use your home equity instead of a 20% cash deposit to purchase an investment property.
  • Many investment property loans in our panel are structured around accessing home equity.
  • How much equity you can access will depend on lenders. Some will utilise up to 80% of the property value, and others will be higher or lower.

How can I access my home equity?

1.Working out your available equity

As discussed above, you can estimate how much equity you have by deducting the balance of your loans secured by the property from its estimated market value. To get an estimate, you can have a real estate agent assess its value or skim through comparable sales in your area for a rough estimate.

It’s important to note that each bank can use a valuer from their panel of approved valuation firms to determine the property’s value. The valuation can be a double-edged sword, depending on the circumstances. In some cases, the bank may provide a very generous valuation and other times, not so much.

Speak to one of our senior mortgage brokers if you’re having trouble getting the valuation amount you need from your bank.

2. Determine how much equity is accessible

In many cases, you cannot access the full equity available to you. Besides, your ability to shoulder any additional repayments will impact how much equity you can access.

For instance, say you have $100,000 home equity in your property. But if you can only afford up to $50,000 in additional repayments based on your income, then that’s the amount you can unlock from your equity instead of the full $100,000.

Speak to our senior mortgage brokers to discover how much home equity is accessible for you.

3. Research the best loan options

This is where we stand out. Now that you know how much home equity you can use, you may want to research and compare the best loan options with a Mortgage Pros senior mortgage specialist.

It’s also a good opportunity for us to evaluate your current home loan and compare rates, fees, and features with other loan solutions from your lender or other banks.

4. Determine the fees and costs involved in accessing equity

Pouncing into equity home loans without knowing the fees involved may cost you more than expected. Our mortgage brokers will guide you along the way and inform you of the various fees involved so you know where you stand in the long run.

Depending on your financial situation, your bank may require LMI if you’re accessing more than 80% of your home equity. Switching to another lender will also incur application or government fees.

5. Equity home loan application and settlement

Once you’ve found the best loan option with your Mortgage Pros broker, we’ll take care of the paperwork and submit them to your lender for underwriting and pending approval.

Frequently Asked Questions

Where should I use my equity home loan?

You can potentially use the loan for any purpose, but most of our clients leverage equity home loans for the following goals:

  • Renovating the same home to increase property value
  • Loan consolidation combines high-interest debts into a single loan with lower rates.
  • Property investment

Are there other benefits to partnering with a mortgage broker?

By applying for an equity home loan with a Mortgage Pros broker, you are partnering with senior mortgage specialists with years of senior banking experience in major Australian lenders. That means you can get tailored home loan solutions to maximise your equity and suit your unique needs.

Other benefits of having a mortgage broker include:

  • Ordering valuations with multiple banks (free of charge) to ensure you get the highest value for your property
  • Guidance and expertise in selecting the right home equity lender
  • Negotiate better loan rates and access flexible loan features
  • Save time, money, and credit score shopping through different lenders. Let our team do the legwork from selecting lenders, submitting your paperwork, negotiating, and settling your application.

Should I refinance with an equity home loan?

It will largely depend on your financial situation and investment goals. Accessing home equity is not for everyone, and if we think we can find a better long-term loan solution for you, our senior brokers at Mortgage Pros will be the first to let you know.

If we think you should access your home equity and leverage Australia’s rising property prices, then we’ll guide you through choosing the best equity home loan.

Our mortgage brokers will discuss your current financial situation and provide market-leading solutions so you can make informed decisions and choose which equity home loan best works for you.

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