What Is Equity?

Equity is the amount of the property that you own outright.  It is calculated by subtracting the amount owed on a home loan from the property's current value.  For example, if your property is worth $500,000 and you have a home loan with an outstanding balance of $400,000, you would have $100,000 of equity in the property.

Why is equity important?

Home loan equity can be important for borrowers in Australia as it can impact their borrowing power and their ability to access additional funds.  Lenders may view borrowers with a high level of equity in their property as less risky, meaning they may be able to borrow more money or secure a better interest rate.  Equity is an important part of calculating Loan to Value Ratios (LVR).

How to build equity

The two most common ways to build equity are by increasing your property’s value and or by repaying your home loan as quickly as possible.

Your property’s market value can change over time and if you are able to increase it by renovating or making other changes that buyers may find more attractive you are able to generate more equity in your property.

Making additional repayments can help to pay off your loan faster. This can be done by making additional repayments or changing the frequency of your repayments. Unloan offer unlimited additional repayments for no extra fee, along with fee free redraws if you need to access your money again.

What can equity be used for?

Once you’ve built up some equity in your property, it can be used in a number of ways such as to fund renovations, a deposit on another home, to make investments or another major purchase.  Equity can be accessed from redrawing additional repayments or by applying for a home loan top up, which allows you to borrow additional funds against the increased value of your house without having to take out a new loan.

Please note that Unloan does not offer top ups.

‍

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍