Aussies cashing out home equity to get ahead

WITH THE UFINANCIAL TEAM

Australia’s housing market slowdown hasn’t stopped Aussies from taking advantage of their property growth.

A recent survey published by one of the Big Four banks revealed many Aussies were unlocking their equity to get ahead.

What can you use your home equity for?

That’s where things get interesting.

If you have been paying your loan for a few years, you may have built up reasonable equity. For example, if your property is worth $600,000 and the current debt on your loan is $290,000, your equity would be $310,000.

You can borrow against your equity to purchase an investment property, for example. But not just that, you can also use your home equity to fund other big-ticket purchases, such as renovating your home or starting a new business.

According to the above-mentioned survey:

4 in 10 Aussies used their equity to make larger repayments on their loan or make a lump sum payment if available

3 in 10 used their useable equity to renovate their homes, and

16 per cent of homeowners unlocked their equity to buy an investment property, 12 per cent to invest in shares and 8 per cent to boost super balances.

Understanding total equity and useable equity

How much useable equity you’ll be able to use will vary between lenders. Still, as a rule of thumb, lenders will generally lend you only 80 per cent of the value of your home.

Here’s an example:

Property value: $600,00

80 per cent of property value: $480,000

Minus current debt on loan: $290,000.

Your useable equity would be $190,000.

Getting access to your equity is a wise strategy to get ahead, but just like any big financial decision, it shouldn’t be taken lightly.

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