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& My home

Home equity explained

A man and women choosing paint colours for the kitchen walls whilst enjoying a tea break.

If you own a property, you may be interested in equity – or at least, interested in learning more about it. In this article, we’ve explained what home equity is, how it can be used and more.

What is home equity?

Put simply, home equity is the difference between your property’s market value and the amount owed on your home loan. For example, if your property is estimated to be worth $725,000 and your outstanding home loan balance is $475,000, then the equity in your home could be $250,000.

The amount of equity in your home can change over time. As you pay off your home loan and the owing balance decreases, the equity will likely increase. If the value of your property increases, your equity will grow – but similarly, if the value of your home decreases you could find that you have less equity in your home than expected.

If you’re not sure of what your property’s value is, there are a couple of ways for you to find out. First up, take a look at online real estate sales data for your local area. Knowing how much a neighbouring property sold for (and its similarities to yours) can give you a good idea of your home’s value. An easy and time-saving way to do this is by downloading a free property report through our website.

Your other option is to get a real estate agent to do an appraisal of your property. Whether there is a charge for this service will vary from agent to agent. If you’re wanting to potentially use the equity in your home for something, then your lender or bank may request a formal valuation of your home by a Certified Practicing Valuer (CPV) and there could be a fee for this. Bear in mind that a real estate agent will assess the value on what they could sell your property for, unlike the valuer which will likely be a far more conservative approach.

What can home equity be used for?

There are several scenarios when the equity in your home could be accessed and used.

To pay for renovations to your home
Have you been dreaming of a spa-like ensuite since the day you moved in? Maybe you need to build an addition above the garage to create an extra bedroom because you and your teenagers are running out of space… Whatever the reason, it’s common for people to draw on their equity to undertake home renovations.

Not only can renovating make your home more suitable for your needs and help you avoid a potentially stressful move, depending on the changes you make and the housing market, you may find that your renovations add value to your home. They could even pay for themselves in the long run!

As a deposit for an investment property
If you’re thinking about purchasing a holiday home down south or an apartment in Perth to rent out, unlocking the equity in your home could be the way to go. Depending on how much equity you have available, it could help you avoid a long period of saving and be a good way to get the deposit together.

Always bear in mind that lender’s will likely only allow you to access up to 80% of your equity (subject to your ability to repay the loan). This decision will be based on your expenses, debts and the other factors that are considered when you apply for a home loan.

For other investments or expenses
You may be familiar with the term ‘diversification’ when it comes to investing. Basically, it means putting your money in different categories – or class – to create and grow wealth. For example, you may choose to have some money invested in property, some in shares and some in an interest-earning account. If you have equity available in your home, you may be able to access it to invest in a different ‘asset class’.

When thinking about accessing and using your home equity, you should always consider the pros and cons of doing so and speak with a financial advisor for help before making any decisions.

How to increase home equity

You may be thinking of using your home equity to your advantage and so, want to increase it. There are a few things you can do that could help you grow it.

  • Choose a Principal & Interest home loan – that way, each repayment will be used to lower the amount you owe, unlike with an Interest-only loan.
  • Pay more towards your home loan than the minimum – it may not always be possible, but if you receive a lump sum (tax refund or work bonus) pay it to your loan. Increasing your repayment amount, if you can afford to can help.
  • Stay in your home – the longer you stay in your home the more likely it is you’ll see the value rise.
  • Make improvements – as mentioned above, renovations can add value to your property. Be sure to do research and ensure that any work you undertake is well-thought-out and done to a quality standard if your goal is increased equity.


If you’re interested in accessing the equity in your home, we can help. Speak to one of our home lending specialists to see what options are available to you. Submit an enquiry and one of our experienced team members will get in touch.

 

Banking and Credit products issued by Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. Any advice does not take into account your objectives, financial situation or needs. For personal financial advice, please refer to an Accountant or Financial Adviser. The property report is prepared by CoreLogic. The statements, information and opinions contained in the report are those of CoreLogic only, and P&N Bank does not endorse or accept any liability for them. CoreLogic uses P&N Bank trademarks under arrangement with P&N Bank.

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