What is equity?

Equity refers to the ownership value of an asset whether it’s a share portfolio or your family home. Accordingly, the equity you have in your home is measured by its market value, less the mortgage balance.

Better still, if you’ve owned your home for a few years, and given the robust run by real estate markets around Australia in recent times, you’ve probably built up some reasonable equity. Having this equity available can be a valuable resource when it comes to buying a property investment or even renovating your home.

As a guide, if your home is worth $500,000 and there’s $200,000 remaining on the mortgage, you have home equity of $300,000.

How can I use the equity in my home?

Some people use the equity in their home to buy an investment property or for renovating the family home. One popular way to access your home equity is to refinance with an equity loan.

An equity loan allows you to access the equity in your home, and it can be used rather than a cash deposit to buy an investment property. Investment property loans are often structured around using home equity, while the amount of equity you can access varies from one lender to another.

Likewise, you may not be able to access the total amount of available equity in your, and your “servicing capability” is an essential factor in this discussion. Your servicing capability is calculated against your ability to make any additional mortgage repayments and will be judged according to your income and expenses. Say, for example, that you have $300,000 worth of equity in your home. However, based on your ADF salary and personal expenses, you may be limited to accessing $150,000 of your available equity for the time being.

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Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.

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