What is Equity?
Equity in your home is basically the portion of your home market value minus the amount of mortgage taken. This amount is usually described in percentages of your home value. For example, if someone says you have another 20% of equity in your home that is unused, this means that about 20% of your home value which is not currently mortgaged can still be used to help you achieve your goals.
Does Home Equity Change Over Time?
Home Equity changes over time as value of the property increases. This is very common when we get our property valued today versus another few years, the value will be different. Based on what mortgage your property has, there is different portion of equity you can use for a property purchase.
For example, if you buy a property today at $500,000. The property over time has grown to $700,000. There is a $200,000 increase in value and that additional gain in value means you can still take a percentage of that value and use it for something else. The rules around what can be used will change over time as well.
This also works in reverse as well if your property value decreases, if the property value decrease, the bank may have the right to call on you to reduce your mortgage amount and have a bigger negative effect to your investment portfolio. Hence it is important to understand what you purchase and how to avoid that reduction.
What can Home Equity be used for?
Depends on situations, you may choose to use your home equity for many different purposes, below are some examples.
- Buy a rental property
- Renovate your property
- Help your children on the property ladder
- Build your dream home
- Debt Consolidation
- Fund overseas travel
- Start up a business
- Finance a new hobby
- Buy that dream toy
- Unexpected medical of health costs
Home equity loans
In general, to utilise the equity in your home, you will need to have at least 20% equity in your property. If you have an investment property, at this stage you still require 35% equity.
To make it simple if you have a property worth $500,000, you can have a total mortgage up to $400,000 for your personal home or if it is an investment property, you can have a mortgage up to $325,000. This means if you have a mortgage less than the maximum amounts above, you can ask the bank for a top-up or refinance to another bank and release that portion of equity to help with what you needed.
In the cases for Ronovationz, we will renovate the property to increase property value, then use the new value to release equity and help with another investment property purchase.
How do I know how much equity I have available?
You can estimate your home equity by finding your home’s current market value and by deducting the amount left on your mortgage.
There is a list of tools from Ronovationz tools page and websites such as QV, Homes.co.nz. etc which will help you determine your property value. If it does not reflect the true value of your home, you will then require a registered valuer to help you assess the market value of your home.
To calculate how much equity you can use, use the below as a guide.
(Estimated Home Value x 80% or 65%) – Remaining mortgage balance = Estimated available equity
I want to look at a home equity loan
If you are interested in discussing options around taking advantage of your home equity then your first step should be to discuss this with your coach, complete a rough property schedule if you already have a few properties and contact us to arrange a time to sit down with you and go through your situation in detail and make the appropriate recommendations and plans tailored to your needs.
You will find our contact details in the trade’s list and if you are unsure, please discuss this with your coaches.
Regards,
