We often hear people say that it is possible to use the “equity” in your property? What does that mean?

Your owner occupied house is worth $500k.

Your loan is $450k.

You have $50k “equity” in your property.

One way to get to that equity is to sell the property. That gives you the whole $50k. Paying the agent and other costs, gives you aproximately $40k of “usable equity”.

(If the property has been an investment for any time you have owned it you may also be subject to Capital Gains Tax – reducing your usable equity).

 

Can you use the equity in your home without selling it?..

When you purchase a home you can borrow between 95-100% of its value. You can borrow 95% plus the mortgage insurance BUT – you can only go this high ONCE. Thereafter you can borrow back up to 90% - plus any top up mortgage insurance.

Your owner occupied house is worth $500k.

Your loan is $450k.

This is already 90%. Even though you have $50k in equity in your home you cannot borrow any further against it.

 

What if your owner occupied house is worth $500k.

Your loan is $400k.

Your equity is now $100k.

You can extract the whole $100k by selling (less costs) or

You can borrow back up to $450k – meaning you can extract $50k – to use as deposit for another property purchase (for instance).

 

Still got questions..? Call or Email me anytime... It's what I'm here for..

Alan Heath