06 Nov 2019

How equity works for second home buyers

Do you still remember how excited you were when you bought your first home? Now that you’re ready to buy your second home, you’re wiser and better equipped to handle the process. Buying your second home is a bit different from your first. The thing you have working for you is equity. 

What is equity?

You’ve heard the term ‘equity’ thrown around, and you’re wondering what it means. 

Your equity is your assets, minus (-) liabilities.

For second-home buyers, equity is a good thing. It’s the difference between the market value of your first property and the amount you still owe on your home loan. 

Equity = (Market value of your house) – (the outstanding amount on your home loan)

If your home is valued at $750,000, and you have $200,000 remaining on the loan; your equity will be $550,000. This becomes the amount of borrowing power you have with your lender. 

As long as your assets amount to more value than what you owe, you’ll have positive equity. 

How equity works for you

Having positive equity gives your lender a reason to lend you more money. The higher your equity, the higher you’re lender’s confidence that you’ll pay back the loan. 

How to increase equity in your home

There are a few popular ways to increase the equity in your home:

  • Increase property value by renovating your home
  • Reducing your loan balance by making more regular or larger repayments
  • Taking out a loan with a shorter term
  • Opening an interest offset account, so your savings offset your loan balance and reduce the interest you pay on your loan. 

Find out how much equity you have

To find out exactly how much equity you have, get a property valuation. This will take into account a range of factors like income, expenses, debt, whether you have Lenders’ Mortgage Insurance (LMI), house size, location and more. 

Mortgage House

Talk to a Mortgage House financial expert to see how much equity you have on your current loan, and what you can do to maximise it and start planning to invest in a second home.

Apply Online today to get started! If you have any questions, you can call our lending experts on 133 144.

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