If you’ve already paid off a significant amount of your home loan, a home equity home loan could unlock a range of new opportunities
As time goes by and your home loan slowly diminishes while the value of your home increases, your ‘equity’ also grows. Equity refers to the value of your asset, minus your loan balance. So, if your house is worth $500,000 and your home loan balance is $100,000, your equity in the property is $400,000.
Perhaps you’d like to purchase an investment property? Equity is a powerful tool to have because you can access it to fund further endeavours and purchases. Maybe you’d like to renovate? By tapping into the equity in your existing property, a whole new world of opportunities opens up.
How does an equity loan work?
A home equity home loan simply involves a lender assessing the value of your home and your debt obligations and offering you a certain percentage of that equity to use.
The loan portion is usually set up as a revolving line of credit, which means if you choose not to spend the money available in your home equity loan, you will not make any repayments. This is because your repayments are calculated as interest only on the amount you’ve spent. The more you spend, however, the higher the interest payments will be.
This works in reverse too, as you may find your repayments decreasing as you pay down your home equity loan’s balance. Your home equity loan repayments cover only the interest that’s being charged. If you never make any extra repayments, you’ll quickly see that your loan balance isn’t reducing at all. So speeding up the repayments is the most beneficial way to go in regards to paying off that loan.
Need more home loan advice
An equity home loan is certainly a tool too definitely be considered if you are coming towards the end of your home loan. A Choice Home Loans broker can help you pinpoint a home equity loan product to suit your personal circumstances and goals.