The value of your home is a powerful financing source just waiting to be tapped
Ever wondered how investors find the capital to build a property portfolio? Or perhaps you’ve found yourself pondering how the neighbours paid for that cruise in northern Europe?
Many of us, unfortunately, are cash-poor – even the most successful, wealthiest individuals. But many are also asset-rich, including those with high value property or a portfolio of multiple properties. It is investors who understand the power of equity who can live life to the fullest.
Equity, in simple terms, refers to the value of the asset or assets that you own.
For example, if you purchased your family home for $500,000 with a $400,000 loan, which you have now reduced to $150,000, you have $350,000 of equity in the property.
Your lender effectively owns $150,000 worth of the property, but the other $350,000 is yours.
And while you have slowly been paying down your loan, your property’s value may well also have been increasing, which means your equity could be even greater.
That equity is the key that can potentially unlock a wealth of opportunities. You can tap into it to purchase an investment property, pay for a trip overseas or even fund a renovation.
How to go about it
While lenders offer different ‘equity’ home loans – with a range of terminology, such as ‘line of credit’ – put simply, an equity home loan lets you use a portion of your accumulated equity in the way that you want.
Your lender will assess the value of your home and review your existing loan obligations before determining how much equity power you have.
Your equity loan will then be secured against your home and you will usually be able to use as much or as little of the loan as you like.
Cautions and considerations
While an equity loan can open up a wide range of opportunities, you’ll need to think carefully about whether it’s right for you.
Certainly, there are considerable benefits if your loan is arranged properly but there are also significant dangers should you lose control of your finances.
Borrowers without a clear strategy can find themselves saddled with debt but without any real return.
Generally speaking, equity loans are best suited to borrowers who are disciplined and know what they want to use the equity for.
If an equity loan appeals to you, however, the best thing to do is to have a chat with us first. We can discuss your financial goals and circumstances and find the right loan arrangement to suit you.