How to Release Equity from Your Home
When you are paying off an investment property you will often gain equity in the property as you pay off the loan. While many people will not use these funds the equity is a very powerful tool that can help you in many ways. The equity in a home is often viewed as the hidden wealth and if you release the equity then you may be able to improve your wealth, income and investment portfolio. However, if you are planning on releasing your equity then you should be aware of the potential pitfall you may face.
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Equity
If you are paying off a home then you may find that you have built up some equity in the property. Equity is:
- What is equity. Equity is the amount of the property that you own outright. For example, if your home is worth $500,000 and the loan value is $300,000 then you will have $200,000 of equity built up in your home.
- How do you build equity. There are many ways that you will be able to build equity. First, you will be able to build equity by paying off your home loan over a period of time, and secondly you will be able to build equity through the growth of the property.
Releasing Equity
If you have equity in your property then you may want to unlock the equity to invest in other ventures. Most people will release their equity through the home equity loans that are available. To release the equity you will have to know:
- How much can you release. If you are looking at releasing the equity of a property then you should realise how much you are able to release. Generally, most lenders will not allow you to get over the 80% mark of the loan to value ratio so if you have a property that is worth $500,000 then you will be able to borrow equity up to $400,000. If you loan only has $200,000 then you will be able to release $200,000.
- Serviceability. While you will be able to release the equity you will have to make sure that you are able to make all the loan repayments. If you released some money for a deposit on an investment property then you will have to make repayments on that amount and you will have to make sure you current financial situation will allow you to do so.
- Cross collateralisation. If you are going to use the equity for an investment then you may want to think about going to another lender to do so. If you get your loan with the same lender then you may find that they will put all the amount owing under the one loan and the loan will be secured by both the properties, therefore if you fail to make the repayments you may lose both properties.
What you Should Consider
If you are looking to release equity there are risks that are involved. If you are releasing equity then you should be sure to know:
- What are the costs. When you release your equity you will have to pay a number of costs. One of the main costs will be the stamp duty that is payable however you will also have to pay application and valuation fees for your new property.
- What should you look out for. The equity loans are generally line of credit loans. The line of credit loans are generally harder to manage and if you are paying off a line of credit you should be sure that you make the repayments on the loan.
If you are paying off a home then you may have equity built up in the property. If you have equity in your home then you will be able to release the equity and invest the money to increase your wealth. If you are considering releasing the equity then you will have to realise that you will only be able to release 80% of the loan to value ratio and you will have to make the repayments on both of the loan in the future. If you are looking to release the equity then you should be sure that you realise the risks that are involved.
Related posts:
- What is Home Loan Equity Release?
- Is Equity Release Safe?
- Bankwest Seniors Equity Release
- What is Equity?
- Reverse Mortgages to Release Equity from your Home
- ING Action Equity Home Loan
- Benefits of Refinancing a Home Loan
- How to Build Up Equity in Your Investment Property
- How to use a Line of Credit or Home Equity Loan to Invest
- Bricks Made of Money: The Home Equity Journey
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