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Article | 4-minute read

Using the equity in your home

Equity is the difference between the value of your property and how much you owe on it. Find out how unlocking the equity in your home could open up opportunities.

What is home equity?

As a homeowner, you build up equity in your home over time, when you pay down your home loan and if the value of your property grows.

The amount of equity you have in your home is the difference between the value of your property and the amount owing on your home loan. For example, if your property is worth $750,000 and you have $250,000 owing on your home loan, then you could have up to $500,000 in equity.


What is Equity? 

When talking about a home loan, equity is the difference between the value of your property and how much you owe on it. 

For example:

If your property is worth $500,000 dollars, and you still owe $300,000 dollars, you have up to $200,000 dollars in equity.

Over time, as you pay down your home loan, your equity increases.  This is assuming the value of your home does not drop. 

You can build up equity through one of two ways:

  1. You can pay down your loan so that as the debt decreases, the equity you have in your property increases.   Again, this is assuming the value of your property doesn’t drop,
  2. or if your property grows in value over time, you would have more equity available.

You may be able to use the equity in your home to secure further funding, for example you might want to renovate your home, buy shares or buy more property…plenty of things.

But there is something important to remember: whether you can use equity to assist you to obtain loan finance depends on your particular circumstances, and you need to be able to make the repayments required by your loan.

For more information contact us at ANZ. 

How can I use the equity in my property?

Depending on your income, living expenses and how much you owe on your home loan, your lender might let you borrow additional funds, using your home as security. You should seek advice from your financial adviser and registered tax agent before making a decision whether to do that. 

Most home loans will fund up to 85-95% of the value of your home. However, if you have less than 20% equity, it’s likely you’ll have to pay Lenders Mortgage Insurance (LMI).

If you have an ANZ home loan, have built up equity and are able to make the repayments, you may be able to borrow against your equity in these three ways.

  1. Apply for a home equity line of credit
  2. With ANZ Equity Manager, you can take out a line of credit with your equity as collateral. You can access your equity anytime, just like you have access to your funds in a bank account, and you only pay interest on the funds you take out.

  3. Apply for a supplementary loan
  4. You could take out an ANZ Supplementary Loan. Choose an eligible ANZ loan that suits your needs best, it doesn’t have to be the same as your existing one. Then you can use that money for a variety of different purposes according to your needs.

  5. Refinance your current home loan
  6. You could refinance your current home loan to access your equity. Talk to our Home Loan Specialists about how you may be able to take advantage of your equity.

Examples of using equity

You may be able to use your home equity for a variety of purposes. Some common uses of home equity are:

  • Investing in property
  • Unlocking the equity in your home could be an option if you are thinking about purchasing an investment property, as it could help with a deposit for that purchase. Investors may be able to negatively gear their property investments depending on their personal circumstances.disclaimer

  • Renovating your home
  • Not only can renovating your home make it more suitable for your lifestyle, it may also increase the value of your property. Accessing your equity could help make your renovation plans possible.

  • Investing in shares or other investment products
  • Some people use the equity in their property to help them grow their wealth. You could use your equity to invest in the share market, buy bonds or buy into a managed fund. As with any investment, there are risks involved (for example, the value of your shares or managed fund holding could go down, not up) and there is an increased risk when you borrow to invest, so it’s a good idea to get financial and tax advice before you commit.

How to build equity in your home

There are two main ways to build equity in your home.

  1. Reduce how much you owe the bank
  2. As equity is the difference between the value of your home and how much you owe on it, the less you owe on your home loan, the more equity you should have.

    Find out how you can pay off your home loan faster with these tips.

  3. Increase the value of your home
  4. If you’ve owned your home for a number of years, the value of your property may have increased over time. Besides owning your property long enough to enjoy capital growth, renovating and improving your home may add to the value of your property.

What to consider when using your equity

The more you borrow against the value of your home, the higher your repayments are likely to be. This also means you could be at greater risk of losing your home if you cannot meet those repayments.

Before you borrow against your equity, it’s worth considering whether:

  • the term of your loan will be extended
  • you’ll be able to make repayments if interest rates rise
  • you have sufficient funds outside of home equity for emergencies.

As always, it’s best to speak to your financial advisor and registered tax agent for advice on your specific situation.

If you have any questions, you can talk to our Home Loan Specialists about how you may be able to take advantage of your equity.

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The information on this page does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you and read the relevant terms and conditionsProduct Disclosure Statement and the ANZ Financial Services Guide (PDF) before acquiring any product. 

Applications for credit subject to approval. Terms and conditions available on application. Fees and charges apply. Australian credit licence number 234527.

ANZ does not provide tax advice. You should discuss the tax implications of any investment strategy with your tax adviser or registered tax agent before deciding to proceed.

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Property price information in an ANZ property profile report, such as a price prediction or price range, is an estimate, not a valuation. Property price information may not be available for all properties, is for personal domestic use only and may change daily. Actual sale prices may be different.

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ANZ may provide pre-approval (also known as approval in principle or conditional approval) to eligible customers who apply for an ANZ home loan and complete an application form and satisfy any other applicable requirements. Pre-approval is an approval for a loan subject to conditions being met, including that security is satisfactory to ANZ. Australian Credit Licence Number 234527.

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ANZ Mobile Lenders operate as an independently operated ANZ Mortgage Solutions franchise of Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. Australian Credit Licence Number 234527.

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