Accessing your equity

Published on December 4th, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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If you ask any property investment expert, you will find out that accessing your equity is one of the best moves you can make. This action may be a real help when you need to finance another venture, or you have financial problems. However, even if you are not in need, accessing your equity can contribute to the achievement of your personal goals, such as taking a vacation.

What does equity mean?

You have been building up equity in your property throughout the years without even realising. If you own a home with a value of $500,000, and you only have $200,000 left to pay, it means that your house equity is $300,000. As the years pass by, and you continue to pay off your loan, your equity is increasing.

You can also build up equity if the value of your home is getting higher. For example, if your $500,000 property has grown in value by 10 percent during the last year, it means that your equity is now $50,000 higher than it was 12 months ago, without taking into consideration the repayments you have done during the last year.

But if you want to access equity through your lender, your property will be evaluated by a certified valuer. He will calculate exactly how much your equity is, and the bank will consider his professional opinion, not yours.

How can you access your equity?

The equity of a property you own can be partially or entirely obtained. The most common way of accessing it is by refinancing the existing loan. However, you can opt for borrowing on your equity, too.

For example, if you are short of money, you can access your equity through the redraw facility. This means that you can practically use the money from any additional repayment you have already made. The condition is for those amounts of money to not be part of the minimum payments.

Australians tend to opt for mortgage refinancing, which allows them to borrow more money. In this situation, the bank will establish the value of usable equity as some of it will be kept back as security. You need to make sure you know exactly how much equity you will have before refinancing. If your lender valuation of the property is $500,000 and you have already paid $300,000, the value of the available equity is $300,000. But if the usable equity is only 80%, it means that you can use only $100,000.

Are there any risks?

The short answer is yes. As any other type of financial move, accessing your equity has both advantages and disadvantages. Even though equity is a useful funding option, you need to know that sometimes it will not meet your expectations. The market and financial field suffer changes all the time, and some of them may be simply omitted when doing your math. Financial experts advise you to consider a buffer of a substantial sum when you calculate the value of your property over the years. Continuing with the already mentioned example of a house worth $500,000, if you anticipate that its value is going to double in 7 years, you should consider a buffer of $150,000.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

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The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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