How much equity do you have available?

If you’re considering an investment property, consolidating debt or borrowing to renovate your home, you’ve probably been asking yourself this common question. How much equity do I really have available to use? But if you’re like most of us, you might not be quite sure how to calculate it.

Calculating your equity

Equity is the amount of your home that you’d actually own if you sold your house and repaid your home loan today. For example, if your home is valued at $900,000 and you owe $600,000 on your home loan, then your equity is $300,000. It’s the $300,000 that would be yours.

The amount of equity you have will grow if the market value of your home increases. With each repayment you’re also increasing equity by chipping away at the principal of your home loan, unless your home loan is on interest-only payments.
 
To calculate your current equity you need to know the market value of your home and the amount that you’ll need to pay if you end your loan. The second one is easy, just ask your home loan provider for a payout figure, which tells you exactly how much you owe if you end your loan today.
 
To work out the market value of your home you may have an independent valuation report completed as part of your home loan application process. However, it’s good to know a ballpark figure of your equity before you apply for an investment home loan. Take a look at what similar houses around your neighbourhood are selling for. Perhaps ask a local real estate agent to estimate what they think your home is worth in the current market. While none of these are as concrete as an independent valuation report, they will give you an idea of the market value of your home.

Depending on your personal circumstances, later down the track you may consider whether to use your equity to invest in more properties. Investing in property using your equity can have tax consequences, so we recommend you speak to your tax accountant or financial adviser to get more information and determine whether this is an appropriate strategy for you.

Repaying your loan

Before you start dreaming about how you’ll spend your equity, it’s worth remembering that market prices can fluctuate so it is important that you consider the amount of your home loan repayments. Our loan repayment calculator can help you determine your monthly mortgage repayments.

If you’re planning on renovating, it’s also worth considering what value the renovation will add to your home. You want to make sure you don't overcapitalise, this is a common situation where you spend more on the renovations than your property ends up being worth.

Once you’ve got an idea of how much equity you have and how you want to invest it, why not contact your friendly and trusted Mortgage Broker, who can walk you through some options and talk about your circumstances? They have access to wide range of home loan products that may be suitable to your individual needs.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.