Home equity is essentially the value of your property less any outstanding home loan repayments. For example, if you bought a house for $300,000 and paid 25 percent as a down payment. The home equity, in this case, will be $75,000 i.e., 25 percent of $300,000. However, if the value of a property increases in future to $500,000, and you still owe $225,000, the overall equity stake will increase from 25 percent to 55 percent.
You can use home equity as collateral in an equity loan. The repayment schedule, interest rate, and terms of a home equity loan are normally fixed. With this loan, you can refinance, buy another property, invest in shares, or renovate a house.
It allows you to use the equity that has already been paid off. As long as the interest is paid on time, you can redraw any payment previously made. This is why it is suitable for businesses or investors.
How Does it Work?
With a home equity loan, you can get a line of credit up to a certain amount against your home loan. When applying for this loan, your financial situation is assessed by taking into consideration your assets, income and the debt you owe. If the loan is taken our for an investment property, the value of the property is also assessed by a lender.
Who Should Apply for it?
A home equity loan can be useful if:
- You already own a house and looking for another property for investment purposes, or
- You want to renovate a property.
You can easily fast track renovating your house through using a home equity loan. It also enables you to buy an investment property without delays. Just make sure that you manage your home loan efficiently to mitigate risk and maximise profit on investment.
Lenders Offering Home Equity Loans
Although, every lender charge different fees and interest rates for an equity loan, the features are almost the same. Given below is a list of home equity loans offered by various lenders:
- The loan offered by the National Australia Bank includes Amortizing Flexi Plus, National Flexi Plus, Introductory Rate Loan with 3-year Variable Rate, NAB Home Equity Line of Credit, and Tailored Home Loan.
- Australia and New Zealand Banking Group Limited is offering Professional Benefits Equity Manager, Equity Manager, Breakfree Equity Manager, ANZ Portfolio Home Loan, and ANZ Portfolio Loan Equity Manager.
- The Suncorp Bank offers two types of equity loans, Asset Line and Money Manager Asset Line
- As for the St. George Bank, it offers Portfolio loan, Standard Variable Rate Loan, Advantage Home Loan with 1-year Discount Variable Rate, and Advantage Home Loan (Portfolio loan).
- Equity Access Loan and Premier Advantage Equity Access Loan are offered by the Westpac Bank
- Commonwealth Bank of Australia is offering a number of home equity loan packages, including MAV package with 1-year Guaranteed Rate, Line of Credit Residential Equity Rate, Standard Variable Rate, MAV Package 12 Month Discounted Variable Rate, MAV Standard Variable Rate, and MAV Package Line of Credit Residential Equity.
Moreover, the interest rate of a home equity loan is much lower compared to an unsecured loan like personal loans or credit cards. It keeps the borrowing cost low. In addition to that, it also gives you a tax benefit. For example, if the fund is being used for substantial improvement, a borrower might be able to deduct some of the interest charges paid. However, make sure you hire a tax expert to help you claim this deduction.
It provides a certain level of security to lenders as well. The equity portion of the house can be used as a collateral. But despite having a collateral, borrowers should still be mindful of not lending too much. Compare different packages available in the market to make sure they are in line with your financial goals. Speak to our team of experts at Hunter Galloway today.