Releasing equity is when you cash in some of the equity available in your property. Your lender gives you the money and increases your mortgage principal by the same amount.
Your property’s equity is the difference between your property’s value and the amount you still owe against it. It’s how much money you would have in hand after selling the property and paying off the mortgage.
You build the equity in your property when the property’s value increases (through market changes and/or property improvements) and by paying off your mortgage principal (the borrowed amount).
Like many financial options, whether equity release is a good thing comes down to how you use it! For the most part, the goal is to grow your equity, rather than spend it, but there are always exceptions.
Equity release can be used as a tool to help grow and maintain your assets or start a business. These scenarios are ideal as you are leveraging the equity in your home to grow your wealth:
Often, releasing equity in your family home is the best way to start building an investment portfolio, without having to save a big deposit.
Equity release can be a good option for consolidating your debt, as often mortgage interest rates are lower than other types of loans.
You can also extract money from a property asset for a holiday or one off large purchase, such as a new car or to pay for a wedding. This should be thought through carefully. It’s a great option if you’ve focused your income on paying down your mortgage as much as possible and therefore don’t have the cash on hand.
It’s important to carefully consider how the additional borrowing will affect your long-term financial position, as the amount released will increase your mortgage balance and interest costs.
You can apply for a “top up” with your current lender. Your mortgage principal is increased but the structure stays largely the same. The top up application process is quite similar to the mortgage approval process. We help our clients manage their top up application, just as we did for their mortgage application.
If your bank is not allowing you to access the equity in your existing properties, we can help! Refinancing your mortgage with another lender is a common way to free up your equity. We can find the lender that best suits you.
The standard borrowing limit is 80% of your home’s value. This is a guide only, as always, specific lending criteria will apply.
For example:
Property value = $700,000
Home loan balance owed = $500,000
Property equity = $200,000
20% of property value = $140,000
Estimated equity available for release = $60,000
Note that the bank will do their own valuation and may come up with a different value than yourself.
If you’re considering using the equity in your property, get in touch with us and we can help you decide if it’s the right option for you. If you do decide on releasing your equity we can then manage the application process for you.
