How to Leverage Your Home Equity

Finance Advice | 21 Apr, 2021

If you’re wondering how to leverage your home equity to effectively drive more wealth creation, you’re already on the right track. Today’s market has meant that many homeowners are sitting on good growth in their home valuation. Using this to drive investment opportunities and wealth accumulation makes sense. But many homeowners aren’t sure how to do that.

How to Leverage Your Home Equity

Equity is simply the difference between the value of your property and the amount of the remaining loan against it. As the value of your property has risen over the past year or years, the amount of equity has risen as well (barring any additional loans against it). Considering how you might use this equity to invest in your next property, or other wealth creation options, is a good strategy at the moment.

Of course, you typically won’t be able to use the full amount of the equity on your home. In most situations, lenders will cap the amount of equity you can use at 80%. This 20% spread helps protect lenders against too much exposure risk and gives them a buffer against fluctuations in the market.

The Benefits

When answering the question, how to leverage your home equity, you need to consider both the benefits and the risks.

Accessing this home equity can give you additional capital to invest in whatever way suits you. This might include buying another residential property, expanding into commercial property (which is easier and more lucrative than you might think), buying into shares or managed funds or even improving your current investment properties.

Investments done well can give you a leg up and help you to move forward in your wealth creation strategy. Speaking with experts, such as our team and our partners in the property, financial or investment space, will ensure that you achieve your desired outcomes.

The Risks

Of course, there are risks as well. All investments present some financial gamble, no matter how well thought out. Beyond that, when you use existing equity to borrow more funds, the amount of property that you effectively own is reduced. And depending on how much you borrow, this could mean a significant reduction.

To mitigate these risks it’s important that you thoroughly research the market and get specialised advice. You want to ensure that your financial situation can handle the ‘worst case scenario’.

How to Access the Equity in Your Home

In most cases you can access all or part of the equity in your home through refinancing your existing mortgage, borrowing on your equity or taking advantage of an in-place redraw facility.

  • Mortgage Refinancing. With refinancing, you’ll be taking out a new mortgage to repay your existing loan and borrowing additional funds against the equity.
  • Additional Advance. In this case you’ll be borrowing more on top of your original mortgage. It’s important to note that this could be at a different (and higher) interest rate. This is because this type of loan is investment related. So, the interest rate on this portion will fall under the umbrella of ‘investment’.
  • Redraw Facility. If you have a home loan with a redraw facility, you can use repayments over and above the minimum repayments.

How to Choose the Right Option for You?

Choosing the right option for accessing your equity can be confusing. Getting in touch with the Stapleton Finance team can arm you with important knowledge and give you a definite advantage.

This is also a good time to assess whether your current lender and loan terms are the best options for you. This analysis could lead to money saved in the long term, giving you a further advantage when it comes to wealth creation.

As your mortgage broker, we work with you to understand your position and your goals. We have the industry and economic knowledge to see the trends and find the best options for you. We have access to over 50 bank and non-bank lenders, and can help you understand the pros and cons of each. Whether you’ve determined to use the equity for property or share market investing, or something else entirely, we can help you access your equity easily and at the best price.

Where Should You Go Next?

When considering how to leverage your home equity for wealth creation, it’s important that you reach out to specialists for advice. Our holistic approach can certainly help you. As a first step our Stapleton Finance team will help you understand your options for accessing your equity. They’ll also work with you to understand the pros and cons of each.

Once you’ve decided that leveraging equity is for you, we can introduce you to our trusted partner experts. They can advise you on the best approach for building your own wealth strategy. These include:

Each of these partners have been working with Stapleton Finance clients since the inception of our business. Speaking with our team can help you understand how to leverage your home equity, your investment options and how those investments can help you build your wealth over the long term.

 

If you’d like to work with our team to leverage the equity in your property, now is a great time. Get in touch today.

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