Owning your own home brings so many great things together – a roof over your head, a place to raise a family, an investment vehicle and in turn a forced savings account which helps in creating home equity faster!
What is home equity?
Most homeowners achieve this by building equity in their home, which is calculated as the total value of your home minus your home loan. The equity in your home increases as you continue to pay down your loan. And if your property’s value increases, your equity also increases.
But did you know there are a few different ways of increasing your home equity faster, without waiting for the market to increase your property’s value?
Today we’re going to cover 7 ways of creating home equity faster, including case studies and one technique you can use today!
7 Ways of Creating Home Equity Faster
- Get another bank valuation
- Put down a bigger deposit
- Get a shorter loan term
- Fix up your property
- Pay more on your repayments
- Use bonuses and tax refunds
- Use one partner’s income
1. Get another bank valuation
This is the simplest, and most overlooked way of creating equity in your home. As we mentioned above, home equity is calculated as the value of your home minus any lending you owe against it. For example, if your home is valued by a bank at $600,000 and you owe $450,000 the equity in your home is $150,000.
A bank valuation is different to a market valuation, a bank valuation helps the lender determine their overall risk on the property whereas the market valuation which can be provided by a real estate agent can help determine the property’s price on the market.
If you are looking at borrowing your home equity, you are going to need to rely on a bank valuation – but the good news is different banks use different valuers.
|
Date
|
Valuer
|
Amount |
Difference
|
|
12/09/2018
|
Bank Valuation 1 |
$640,000
|
–
|
|
12/09/2018
|
Bank Valuation 2
|
$640,000
|
–
|
|
13/09/2018
|
Bank Valuation 3
|
$770,000
|
$130,000
|
As you can see from this recent scenario, we obtained 3 different bank valuation from 3 different banks and the results are incredible – bank valuation 3 was over $130,000 HIGHER than the other ones completed.
On the same property. At the same time. Just different bank valuers.
You could create over $130,000 in equity just by looking at another bank. We can assist with arranging a free bank valuation, get in touch to arrange.
More: See ways to challenge a bank valuation
2. Put down a bigger deposit
Although not always possible, you can get equity from the very beginning by putting down a larger deposit. If you can get together more than 20% deposit you will avoid lenders mortgage insurance.
More: On the opposite side, how to buy with no deposit at all?
There are lots of ways of creating equity in your home.
3. Get a shorter loan term
This is one way to create some forced saving! By default, most banks will give you a 30-year mortgage term, and your repayments will be calculated assuming it will take you 30 years to pay off the loan…. But if you want to be able to pay off the loan faster and build your equity quicker try reducing the loan term to 25 years, or even 20.
The added benefit is that by having a shorter loan term you will pay much less interest over the life of the loan putting more cash into your pocket!
|
Home Loan Amount
|
Loan Term |
Repayment per month
|
Interest Paid over life of loan.
|
Interest saving |
|
$450,000
|
30
|
$2,148
|
$323,412
|
–
|
|
$450,000
|
25
|
$2,375
|
$262,579
|
$60,833
|
|
$450,000
|
20
|
$2,726
|
$204,458
|
$118,954
|
|
$450,000
|
15
|
$3,328
|
$149,147
|
$174,265
|
More: See if refinancing makes sense for you.
4. Fix up your property
Some simple cosmetic renovations can make a massive impact on your home’s equity position. But not all renovations improve your equity position, and spending money doesn’t necessarily increase value.
Jobs that tend to have a negative impact on property’s value includes poor landscaping, additions that don’t match the original building, creating dark rooms, over renovating, appealing to the wrong crowd and not getting the appropriate council approvals.
This property in Brisbane needs a little bit of TLC!
5. Pay more on your repayments
Without having to reduce the loan, you could start making smaller additional repayments to your home loan to help smash your loan and increase your home equity faster! You’ll be surprised what small amounts can make to the overall interest costs.
|
Home Loan Amount
|
Loan Term
|
Repayment Per Month
|
Extra Payment per month
|
Interest Saved |
Time Saved
|
|
$450,000
|
30
|
$2,148
|
–
|
–
|
–
|
|
$450,000
|
30
|
$2,148
|
$100
|
$30,170
|
2 years 5 months
|
|
$450,000
|
30
|
$2,148
|
$200
|
$54,912
|
4 years 6 months
|
|
$450,000
|
30
|
$2,148
|
$500
|
$108,412
|
9 years
|
|
$450,000
|
30
|
$2,148
|
$1000
|
$161,202
|
13 years 9 months
|
A few simple tips to this include:
- Add a small extra amount to your monthly payment, start small and increase over time. For example, if your monthly repayment is $2,148 round it up to $2,200 being $52 extra and try to increase over time.
- Switch from monthly to fortnightly payment, so instead of $2,148 per month make it $1074 per fortnight. As there are 26 fortnight’s per year and only 12 months you will end up making 2 additional fortnightly repayments cutting years off your loan!
- Try to schedule extra repayments automatically from your bank to your home loan account at regular intervals, like just after your payment has gone in.
More: ASIC Extra Mortgage Payment Calculator
6. Use bonuses and tax refunds
If you don’t want to put yourself under too big a financial commitment like reducing your loan to a 20, or 25-year term or increasing your monthly repayment look for lumpy sums of money you receive each year – like bonuses and tax refunds. Or even Christmas and birthday gifts (if you have some rich relatives)!
Stick them on eBay and put the cash onto your home loan! Any extra money added to the loan goes to reducing your loan principle, and therefore reduces your interest bill!
Your can use your employee benefits like bonuses and tax refunds to help pay down that loan quicker!
7. Use one partner’s income
This is one my parents did back in the day, and it still works a treat today. Couple’s that want to get their home loan paid off super fast can dedicate one person’s income entirely to paying down the home loan, and life off the second income. You might need to cut back on the smashed avo, and late night pizza but it will help build that home equity way faster!
Next steps to get started with your home equity
Our team here at Hunter Galloway is here to help you accessing home equity. Nathan & Joshua Vecchio are Senior Mortgage brokers who specialise in making your home journey easy.
The Hunter Galloway Mortgage Broker Brisbane team is here to help. We have a team of home loan experts.
Unlike other mortgage brokers who are just one person operators, we have an entire team of experts to help make your home loan journey as simple as possible.
If you want to get started, please get in touch here and we can book a time that suits you – either a phone call information session or a face to face meeting (which doesn’t cost anything for you)
Further reading: