With the recent turn of events in the property market that has seen many segments slow down, more Australians are finding themselves owning homes with no real equity in them. Furthermore, Aussies will soon find themselves placed at a considerable risk when it comes to selling their homes if the property market that could experience a continued drop in house prices.
What is home equity?
In its basic definition, home equity is the difference in money of what your house is currently worth now and what you still have to pay off in terms of your mortgage. For example, if the current home value of your home is $600,000 and you have $300,000 left to pay, the value of your house equity is $300,000. The more you pay off your loan the more your home equity increases, but recent research By Roy Morgan reveals that this is becoming a struggle for 386,000 Australians.
Research reveals that WA mortgage holders have no real equity
According to the research, the number of Australians that are unable to pay off their mortgage has increased from 8.0% to 8.9% n the past year. This has also resulted in an increasing number of people who have mortgage stress. Roy Morgan found that there are states that have an increased risk of having low or no real equity in their home.
States such as WA had 90,000 mortgage customers who possessed little or no real equity in their home. This was a two percent increase compared to 14.0% of the population in 2017. SA experienced the largest jump of home owners who had no real equity in their homes from 7.6% to 12.1% over the last 12 months.
Although there are many areas within Australia that have mortgage holders facing equity some areas performed better. VIC was the second-best performer with 6.8% of its mortgage holders facing equity risk. Other states that also had a fairly low number of mortgage holders facing equity risk was TAS with 7.0%, followed by QLD with 9.6%.
How to build your home equity
There may be a few Aussies that may be facing equity risk, but there are ways that mortgage holders can improve the equity in their home in a safe way. There are many ways that you can build it faster, but it is important that whatever method you choose is safe. Some of the handy ways in which you can build equity in your home are:
- Manage your mortgage payments. It is vital that mortgage holders find a home loan that comes with repayments that they will be able to meet. Check if all the payments you are making are paying off the principle of the loan instead of just paying for the interest.
- Refinance your home loan. You can consider refinancing your home loan, but it is important that you weigh the costs that come with refinancing and break fees from your previous loan.
- Save to make extra repayments. Selling your home when it is currently sitting on no equity can be risky as this can cause you to sell your home at a loss. What you could consider is opening an automated savings account to help you save towards making extra repayments and reduce the amount that you owe.