Are You Sitting on an Equity Goldmine?
Equity, simply put, is the percentage of an asset that you own.
When you take on a mortgage and start making payments towards a property, the amount of equity you own on that property gradually rises. Once you reach 100% equity and you’ve paid off the mortgage, the property is officially yours.
If you sell a property you own 100% of, all the money from the sale goes to you. But equity is more flexible than that. You don’t have to sell off your property to leverage its value – instead, you can use your equity.
If you’ve paid off a large percentage of your mortgage or you own property, you could be sitting on an equity goldmine.
The “equity goldmine”
There are a range of options that exist for homeowners looking to leverage their equity into further investments, more property or refinancing opportunities.
The most common option is the reverse mortgage, which allows you to borrow funds using your home equity as security. This option is commonly used by people who need extra money, are retired and/or don’t want to sell their home.
Options such as reverse mortgages open up several financial opportunities:
If you take the reverse mortgage route, you can take the loan as a lump sum, line of credit, income stream or combination of these options. Generally, the amount you can get is linked to your age.
If you have a good amount of equity, a wise strategy might be to leverage that into borrowed cash to place into an investment with strong potential for return.
If you’d like to increase your property portfolio, or a particularly rare opportunity arises, you can leverage your equity into borrowed funds to invest in more property.
With a reverse mortgage, you don’t need to make repayments on the borrowed funds you accumulate whilst living in your home. If you sell your home, however, the loan must be repaid in full.
One strategy might be to take on a reverse mortgage, use the funds to invest in a more valuable property, rent that property out until it yields a return and then move in. It’s best to speak to your accountant and your lender about the best options for you, but one thing is for certain: Having equity gives you a range of economic flexibility.
Refinancing to access equity
Accessing equity can be difficult with some lenders and loans. When this is the case, it may be necessary to refinance your mortgage before accessing equity.
If you’re confident that the value of your property will rise, you can speak with your lender about refinancing to access your home’s equity. Keep in mind that the more equity you own relative to your home loan, the stronger your case will be.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking about refinancing, you can contact us for advice about the best options for you. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.