How do you access equity

By Shane | Invest

Jun 19

The growth in property values in Sydney has been unprecedented over the past few years. This has resulted in many property owners sitting on large amounts of untapped home equity. When used properly, accessing equity can act as an ‘accelerant’ to wealth building. However, a common question I hear is, “how do I access equity?”

Let’s take a look at the 5 step process of accessing equity.

1. Calculate your ‘available equity’

There are two numbers you need to know to be able to calculate ‘available equity’. First, you’re going to need to know the approximate market value of your property. This is usually based on comparable sales in your area. if you have no idea what your place is worth, click this link to message us and we will prepare a complimentary estimated property valuation report.

The second number you’ll need is the total amount of the loans secured against the property. This can easily be found by logging into your bank’s internet banking.

Your ‘available equity’ is calculated as the approximate value of your property minus the total of the loans secured against it. Write this number down.

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2. Determine your ‘usable equity’

The difference between ‘available equity’ and ‘usable equity’ is that whilst you may have equity in your property, you would need to sell your property in order to access it. This has many unwanted costs (real estate fees, conveyancing etc) so it often preferred to access ‘usable equity’ which doesn’t require you to sell the property.

Most banks allow you to borrow up to 80% of a property’s value before incurring lenders mortgage insurance. Some professionals (doctors, accountants, etc) may be able to access special arrangements with lenders to access up to 90%… but let’s stick with 80% to be safe. So to determine ‘usable equity’, you take 80% of the value of your property before subtracting the total loan amount that is secured against it.

The reason we calculate both is simple. It allows you to check whether your goals can be achieved without selling your property – using ‘usable equity’ – or whether you’d need to sell your property to achieve your goals – using ‘available equity’.

The key question at this point is, do you want to sell your property?

3. Understand your finance options

It’s time to get in contact with your mortgage broker – like the guys and gals at Pearl Financial – to understand the finance options available to you. It may be a good opportunity to give your current home loan a quick checkup as. Pearl Financial can help you check the interest rates, features, fees, flexibility, and whether it is suited to help you achieve your long-term goals. It’s also important to understand whether your current lender will let you access equity, and any restrictions that they place on the use of your equity.

Once your Pearl Financial mortgage broker has helped you select an appropriate finance option, it’s time to put your plan into action!

4. Finance application process

Pearl Financial can help you through the entire home loan application process, including:

  • Gathering the right documents
  • Submitting the loan to the lender
  • Following through until loan approval, and
  • Helping you through the settlement process

Once your loan is settled, your going to have access to your equity.

5. Put your equity to work

Now that you have access to your equity, it’s time to put it to work. Some people choose to invest their equity, allowing them to grow a larger asset base that will help them grow their wealth and generate more income over time. Others will use the equity to fund renovation projects around the house, whilst others still will use the equity to consolidate debts or pay for lifestyle expenses.

We believe that using equity to invest is one of the smartest financial decisions that can be made. It can accelerate your wealth by helping you accumulate more assets, generating more income, whilst potentially paying less tax.

Bonus step!

There are two forces at work when generating equity:

  1. Your property value goes up, and
  2. Your loan balance goes down

Because of this, you are likely to re-build equity over time. The bonus step is simple – review your equity position every two years. If you are a client of Pearl Financial, you would have access to our Wealth Portal, which makes tracking equity super simple. The Wealth Portal Pro will automatically track your property value and your loan balances, making knowing your usable equity a breeze. Check out the Wealth Portal by clicking this link.

If you have any questions about the process to access your equity, click this link to chat with one of our team.

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Author: Shane

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