Releasing the Equity in Your Property

What is equity release?

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).

Is equity release a good thing?

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:

  • Deposit to purchase a holiday home, residential investment property or a commercial property
  • Funds to renovate your property
  • Working capital for a business

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.

If however you could save the money by cutting down on expenses, it would be much better to do so. As the equity released goes against your mortgage you will be paying interest on the amount.

How do I release the equity in my property?

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.

How much equity can I release from my home?

The standard borrowing limit is 80% of your home’s value. This is a guide only, as always, specific lending criteria will apply.

  1. Figure out your home equity by taking your home’s value, and minus what you owe. The amount left is the equity.
  2. Next, minus 20% of the home’s market value from the amount of equity.
  3. The amount left is the equity amount you may be able to access.

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.