What is Equity and How To Use It

Equity is one of those things that most people want, but not many actually know what it is. We’re here to solve the mystery of equity and let you in on all the secrets. Find out why you want home equity and how you can use it.

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WHAT IS EQUITY?

To put it simply, home equity is the current market value of your home, not counting the amount you are still owing on your home. This means that, depending on the current state of the housing market and your mortgage repayments, your home equity will fluctuate. To break it down even further, if you are making repayments on a home by way of a mortgage, then the lender owns part of your home. Your home equity is the portion of the home that you own outright.


HOW MUCH EQUITY DO I HAVE?

Determining how much home equity you have is simple. First, you’ll need a property evaluation to accurately estimate how much your home is worth on the current market. Once you have that figure, you simply subtract the amount you owe from the home’s overall worth. The more mortgage payments you make, the higher your equity will become.


HOW TO USE EQUITY TO INVEST IN PROPERTY

So, you’ve discovered that you have a decent amount of home equity. Now the question is, how can you use this equity to your advantage? One answer is to use it to invest in property.

To gain access to your equity you don’t actually have to sell the home. Instead, you can take out an additional loan or increase your existing loan, lowering your home equity to free up that money to be invested elsewhere. Doing this means that your home will act as the deposit for your next property investment. The risk that comes with this is that, if you fail to make repayments, your home is on the line.

It’s important to remember that, just because you have a decent amount of home equity, this doesn’t mean you will automatically have access to it. Many lenders won’t allow you to borrow against your equity based on factors such as your income and current debts. Keep in mind that if you do get approved, this is merely the lift off for another ongoing loan, not a complete payment.

Knowing how much equity you have gives you a better understanding of your overall financial position. Having this knowledge allows you to make smarter investments. Still unsure about what equity is and how to use it? Contact us for more information.

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Courtney Dixon