What is property equity and how can you use it?

Using equity to buy propertySome people who live in large family homes may find that the kids have flown the nest and they no longer need such a big place, so they can use the equity in their home to buy a smaller, cheaper place (right sizing we like to call it) and the use the difference to fund or supplement their lifestyle.

Do you know what equity is and how you get it?

Equity is basically the difference between what your home is worth (market value not what you think it is worth) and what loan amount may still need paying off. For example, if your home is worth $500,000 and your home loan is at $300,000 then you have $200,000 in ‘equity’.

The beauty of equity is that banks and other lenders will let you access that amount to fund other purchases (not usually the whole amount mind you but a good chunk like 80 percent). So you could use the equity to buy a new car, take a holiday or put down a deposit or buy an investment property.

Don’t forget that once you start using your equity you will increase your loan amount and have to make increased repayments.

If you are buying an investment property and then using the rent payments to help you pay off the larger loan then you may be on to a winner as you pay off a loan with help, while potentially having the property increasing in value, and thus also creating additional equity.

You need to be sure that you are calculating all the costs involved with buying an investment property and not just doing some simple numbers that look great. Get some help from your accountant or financial adviser if you are unsure.

Using your equity can be a smart way to buy an investment property or fund a nice little lifestyle.

Have you ever used equity to buy another property or fund your lifestyle?


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