It’s not the purchase price of your property that determines its equity, but instead its current market value. As property prices rise or fall, so too can the equity in your property go up and down.
Equity is the difference between the value of your property and the amount you still owe on your loan. As an example, a home valued at $900,000 with $250,000 due on the mortgage would have $650,000 worth of equity that you can potentially access.
Your home’s equity is an asset that can be used to boost your borrowing power. Borrowing against the equity in your property as a loan or a line of credit allows you to access funds for home renovations, property investing, significant purchases or debt consolidation.
To find out how much equity you have currently, you can organise a property valuation through your lender – speak to your local Yellow Brick Road representative to arrange this for you. Your ability to borrow against your home’s equity will depend on numerous factors like your income, debt levels and credit rating.
The quicker you ramp up your equity, the earlier the opportunity to invest further, expand your portfolio and grow your wealth. You can build equity without even trying if your property is in a high-growth area and it appreciates over time. Of course, the reverse can happen if property prices in your area decline.
Here are four ways to improve your chances of boosting your equity.
Buy at a good price
At the start of your investing career, it doesn’t hurt to knock $25-50k off an average priced home. Paying a lower price not only saves money up front but also over the long term through reduced interest payments.
Mastering the art of negotiation is your best bet for knocking down the purchase price. Start by doing your sums and knowing your limit, but never let on to the seller what you’re prepared to pay. Place a time limit on your offer and tempt the seller with something like a quick sale. Stay calm during the process; keep a clear mind and a cool heart.
Choose an up-and-coming area
Look to buy in promising areas that market demographics show has the potential for future growth. These are often areas close to popular suburbs, where there is planned infrastructure, access to work, new businesses opening, and signs of homes being renovated. It can take time to put in the research, but the payoff is you will be able to buy a property for a reasonable price in an area where values are projected to rise.
Buy a property that can be improved
Renovation can increase home value, but it’s usually more effective in a rising market. Keep in mind that it takes time, money and experience to renovate successfully. You want to improve your home just enough to add value but not risk overcapitalising, where the cost of renovations outweighs the value added to your home.
Pay your loan off sooner
Aim to make your initial down-payment at the time of purchase as high as possible. Then look for ways to repay your home loan early: make more substantial repayments or increase payment frequency, such as weekly instead of monthly.
Take advantage of payouts, inheritances and work bonuses to make lump sum repayments on your mortgage. Be sure to check your loan has the flexibility to allow this without penalty.
Another option is to use the interest offset accounts that come with many loans – these reduce the amount of interest charged by offsetting your savings to the value of your mortgage.
Speak to your Yellow Brick Road mortgage broker about how to tap into your home’s equity, which may include a line of credit loan or refinancing your existing loan to access funds.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.