Equity, its the end goal for all of us – its literally the bit we own! And eventually we want to own the lot – right?
How do you work out what your equity is?
The equity is the difference between what your property is worth and what you owe on the home.
Accessible Equity, is the portion of the equity that the bank will let you borrow against. Usually up to a maximum of 90% of your property value.
So, if your home is worth $600,000 – say, and you owe $400,000 then your equity is the difference – $200,000. But your bank will only let you access up to roughly 90% of the value – so, $540,000, less what you owe – $400,000 – means you can access up to $140,000.
Whats it good for?
Well as I said, the aim for all of us is to have no loan at all on our home, but in the interim we may want to use it to:
- renovate or improve our home
- buy a new car – but I want you to pay off this bit of the loan super fast, please
- go on a holiday
- or buy another property (ohhh great idea!)
How do we get it?
Equity comes from your repayments as well as any natural growth in the property value. As the value increases and your loan decreases you build up more and more equity. Got it?
Imagine if you used your equity to buy another home which also went up in value and you were able to sell that home in time and pay your loan off in full…. it can happen – see here.