Find out more about your options for accessing the equity in your home for a variety of purposes with Savvy.
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If you’re in a position to draw on the equity you’ve built in your home over the years, it’s important to know how you should go about doing it and what it may mean for your personal financial situation. Read more about what equity release is and compare your options for doing so with Savvy.
Equity release is simply the act of withdrawing from the overall equity which has been established in your property. This is calculated by subtracting the amount owing on your mortgage from the value of your home, which increases over time as you pay it down (as well as with increases in property value). There are a number of different ways you can release equity from your home loan, which include the following:
Home loan top-up
A home loan top-up is possible if you’ve grown a suitable amount of equity in your home. You can receive a top-up on your mortgage by applying to your lender and requesting funds to be added to your outstanding balance, after which you can make use of them however you wish (although part of this application process will involve outlining your intended usage to your lender). The major advantage of this type of finance is that it’s inexpensive compared to applying for another loan outright, with fewer fees and an overall smoother process.
Alternatively, many borrowers will take out a line of credit loan, which allows you to borrow against your equity and withdraw funds whenever you like. You’ll only be required to pay interest on the amount you use, also, so you can avoid having to take out a single lump sum and begin repaying it with interest immediately even if you don’t end up using all of it.
Reverse mortgage
Unlike top-up loans, reverse mortgages are restricted to borrowers aged 60 and over, typically those who have paid off their home loan in full. Another area in which these differ from top-ups is how they can be paid to you, as you can receive reverse mortgage payment in the form of a lump sum, consistent income stream, a line of credit or a combination of all three.
You won’t have to make repayments towards your debt, as it accrues by subtracting from your equity, which is then repaid when your home is sold (either by you or your estate when you pass away). In terms of what the maximum equity release is, you can generally access 15% to 20% from the age of 60, with roughly 1% added to each year older than that you are.
Home Equity Access Scheme
A slightly different option when it comes to accessing equity, the federal government’s Home Equity Access Scheme allows eligible borrowers to receive a recurring fortnightly loan payment, which can be used to boost their income already received by the age pension. In terms of what the maximum equity release here is, you can take out up to 150% of the maximum fortnightly pension. This amount is non-taxable and doesn’t come with a required minimum repayment, instead allowing you to pay whenever you like (or when you sell the property). The longer you leave it, though, the more interest and fees will build up.
No – refinancing is the main alternative to topping up your home loan, as well as the other equity release methods mentioned above. You can do this either with your current lender or a new one, where you can expand the size of your loan to incorporate the equity you’ve built with loan repayments. Unlike these other methods, refinancing involves closing out your current home loan and taking out a new one essentially to pay off your old one for a particular purpose (in this case to increase the size of the loan).
If you’re submitting your refinance application to your current lender, the process can be a quick one, as they have all of your major documents and banking details on file, as well as the power to close and open new accounts promptly. Refinancing to a loan with a different lender will take more time, as this follows the same process as a standard home loan application.
A key benefit of home loan refinancing is that it not only enables you to access your home equity but also secure other features you may not have had available to you on your original home loan, such as an offset account, redraw facility or simply a lower interest rate and fees. Each of these can make a significant difference to your home loan repayment experience, so it’s an option worth considering. Fortunately, you can compare a range of home loan offers all in one place with Savvy today.
Many property investors will access the equity in their residential home to take out a loan to purchase an investment property. This saves from having to save up another significant cash deposit or pay Lenders Mortgage Insurance for a sub-20% deposit.
In many cases, this is the easiest and most effective way of accessing equity.
An easy way to pay for renovations is to simply increase your current home loan by drawing against your home equity. This is especially the case for more substantial renovations, such as extensions and complete interior reworkings, so it’s important to know what your options are when paying for home renovations.
You may just want to bring other high-interest debts under one single repayment to help you save. It can be difficult to manage a variety of different debt payments, such as car and personal loans and credit cards, at once, especially on different pay cycles, so bringing them under your roof can make them much simpler to manage.
Life can sometimes throw you curveballs, with unexpected expenses such as home repairs and medical bills potentially straining your financial situation. Fortunately, topping up your home loan is often a relatively fast process, giving you access to the funds you need quickly so you can cover any potential emergency costs.
Many business owners when starting out may turn to their home equity as a way of gaining access to a large enough lump sum to cover the setting up costs and providing some working capital. While there are loans available for startup businesses, you can potentially be approved for a significant amount more via your home equity.
Even without a massive amount of savings, you can boost your available funds and bring your goals within reach by drawing on equity.
Topping up your current home loan is often a less complicated and costly process than applying for a new loan.
If you’re conducting renovations, you can increase your home equity by improving its overall value.
Your loan will end up costing you more in interest and will likely take longer to repay with equity taken out.
If you’ve paid off your home loan and then decide to access your equity, you’ll no longer own it unencumbered.
You could potentially increase your debt even further if your home drops in value after you’ve withdrawn from its equity.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
