It’s easy to think of your home loan as a never-ending series of monthly repayments, but with every payment you make, you’re building up equity in your home and you might just have enough to start putting it to use.
You’ve been dutifully meeting your home loan payments every month for years, even adding a little extra where you can. While it might not seem like it, you could have built up considerable equity in your home, especially if property prices have been climbing in your area.
“Equity is the difference between the current value of your property and any debt that you still owe,” says Peter van der Westhuyzen, Head of Institutional and Direct at Macquarie’s Banking and Financial Services Group.
“If you have a property valued at $600,000 and a loan of $400,000, then you have $200,000 of equity.”
Even if your debt level has stayed the same, the value of your home might have increased (possibly due to rising property values or as a result of home improvements), and with it your equity also.
The good news is, you can access it – without having to sell your home.
Think of home equity as an asset you can use for other financial purposes – whether that's investing, renovating or moving house.
Lenders will often let you tap into your home equity to use as collateral for new loans. This is a very common strategy for property investors. Done right, it can yield great results – as long as you're aware of the risks.