Things to be mindful of if you’ve bought property during COVID

03rd Nov, 2021 | First Home Buyer, Investor

In this article:
Let’s look at what this means for you from a home loan perspective.

As per CoreLogic’s October 2021 report, property prices in Australia experienced a whopping 20.3% year-on-year growth in September 2021, the highest surge since 1989. So, if you’re one of the lucky buyers who’ve purchased property during the peak of the pandemic, your property value is likely to have appreciated by double digits. Let’s look at what this means for you from a home loan perspective.

#1 Property Equity Rise

Property Equity is nothing but the difference between your property value and the amount you owe your lender. Let’s say your property is valued at $500,000 and your outstanding loan amount on it is $400,000, then your equity in the property is the difference between the two amounts, which in this case is $100,000. Now let’s assume your property has appreciated to $600,000, and your loan amount has dropped to $390,000 (since you’ve been making home loan repayments). Your new equity is now $210,000.

#2 Better Interest Rate

So, what can you do with a stronger equity position? For starters, higher equity implies that you are a less risky borrower. There is an inverse relationship between your property equity and the home loan interest your lender charges you. In other words, lenders typically charge borrowers that have higher-level equity with a lower rate. Begin with assessing the value of your property and calculating your equity. You can use a variety of reliable online tools to do this. Alternatively, you could engage a mortgage broker to help with this calculation. Once you calculate your equity, compare this against what your lender is charging new borrowers for that equity slab. Lenders usually pass on any rate cuts to new borrowers only. If you are an existing borrower, you will need to check for interest rate gaps and, consequently, ask your lender for a correction. Your mortgage broker could also guide and provide valuable tips on how to negotiate with your lender.


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#3 Be open to refinancing

If your lender refuses to match the interest rate, be prepared to walk away. But do keep in mind the exit fees and other possible expenses involved in switching lenders. A mortgage broker can help you assess the benefits of continuing with your existing lender or option for a different home loan with better features and options.

#4 Use your equity to access more funds

You can also use your equity as collateral to access funds for other needs like buying more property, construction, and renovation. A strong equity position also allows you to become a guarantor for a family member or friend. The lender will use your property equity as security to offer a loan to them. For more information on the guarantor, schemes click HERE.

 The most straightforward approach to taking stock of your equity position and deciding on the best way to get the most out of it is to rely on the professional guidance of a mortgage broker. Mortgage Brokers usually receive a commission from the lenders when they settle a loan. Their services are, therefore, generally free for borrowers.

Reach us for the best way forward as per your circumstances.

The information is a compilation from various sources for your benefit and should not be relied upon in lieu of appropriate professional advice.