Blog Home equity: how can you use it to your advantage?

Home equity: how can you use it to your advantage?

01 September 2014
Home equity: how can you use it to your advantage?

Making your property work for you is one of the hidden benefits of moving into the real estate landscape in Australia. Becoming debt-free as fast as possible has the obvious benefit of no longer making repayments on your mortgage, but there is something else going on every time you make a payment.

One way people get themselves ready for the future is by increasing their home equity. This could be a brilliant option to consider, especially if you're already well on your way to repaying your home loan.

What is home equity?

When people talk about home equity, they're simply talking about how much of the property a particular individual actually owns. Your equity is basically the difference between the value of your property and how much you have left to pay on your mortgage.

As this amount begins to grow and you start to become the dominant owner of the property, a number of doors begin to open up. It's possible for homeowners to access the equity in their home in order to make purchases in the future, with investment property ranking highly among them.

This is a great way for potential investors to get their feet off the ground by using the value already intrinsically tied to their home to begin branching out into the market again. Because they aren't raising funds from scratch - as is often the case with first-time buyers - the whole process is accelerated.

Taking the deposit amount out of your home equity means getting your foot into the market faster, allowing you to begin reaping the rewards of property investment sooner while working towards paying off the mortgage through rental incomes - if you choose to rent the property out.

How can you raise equity?

Ultimately, increasing your equity means paying off your main mortgage as fast as possible. There are a number of ways to go about this, which all work towards the same conclusion. At the end of the day, the tips that apply to you will depend on your own financial situation and goals. Keep this in mind when making a decision about your future.

1. Increase your repayment amounts

If you're interested in getting some decent equity as fast as possible, consider increasing the amount of your weekly repayments. As you make payments, your equity grows. Therefore, raising the amount of your repayment amount will naturally chip away at your remaining balance faster, helping you to rapidly accumulate equity.

Of course, this is dependent on whether you're able to afford this. No point in raising your repayment amount if you're unable to meet these regularly.  In fact, missing payments will land you in worse trouble than maintaining a comfortable level.

2. Grow the value of your home

Your equity is linked to the value of your home. So increasing how much your home is worth will naturally increase your overall equity. Adding some valuable renovations to your home could do wonders for your overarching equity value.

Something like an additional bedroom or bathroom could be a wonderful addition, or perhaps you're interested in revamping your kitchen. There are limitless ideas for you to explore and pursue, just be sure to understand how much you stand to gain in order to make the most valuable decision.

3. Lump sum home loan payments

Finally, chat with your mortgage provider about the possibility of making lump sum payments towards your mortgage. This can be a wonderful way to take large chunks out of your remaining balance while simultaneously earning large amounts of equity in one go.