Use Your Equity

Home Equity Loans

Have you heard about home equity loans, but aren’t sure if they’re right for you? There are certain times when a home equity loan could be ideal just as there are times when more traditional mortgages might be more suitable.

Why Do I Need a Home Equity Loan?

Most people’s biggest asset is the family home. As the years pass, your mortgage is paid off and the value of your home has increased to several times what you originally paid for it. This increased value, minus your loan balance, is called your home equity.

Banks are able to lend you money using your home equity as collateral, or security, for the loan so that you can access that value to do other things. You might decide to renovate your home, add on a new room or a new kitchen. Some people use this value in their homes to fund wealth building ventures. You could use your home equity to purchase an investment property or to invest in the share market.

The idea behind a home equity loan is that you are able to redraw your own money out of your equity to use however you choose.

How Does a Home Equity Loan Work?

Home equity loans are also called a “line of credit”. The bank will assess the value of your home and they’ll look at what you already owe to determine how much equity you have in your home. You’re allowed to borrow a certain percentage of that equity value to use however you please.

The loan portion is set up as a revolving line of credit, which means if you choose not to spend the money available in your home equity loan, you will pay no repayments.

This is because your repayments are calculated as being interest only on the amount you’ve spent. The more you spend, the higher the interest payments will be at the end of each month. This works in reverse too, as you may find your repayments becoming lower as you pay down your home equity loan’s balance.

Can I Make Extra Payments Off My Home Equity Loan?

Your home equity loan repayments cover only the interest that’s being charged. If you never make any extra repayments, you’ll quickly see that your loan balance isn’t reducing at all.

By making any extra payments you can off your home equity loan, you’re not only reducing your debt, but you’ll also be reducing your monthly interest payments at the same time. Another benefit to this is that as your loan balance reduces, you are able to re-use that same equity again. Simply redraw the money available in your home equity loan for any other projects or purchases you want.

Which is the Best Home Equity Loan?

Most banks offer a form of home equity loan product. Some call them by different names, like a line of credit or an equity access loan, but they’re still essentially the same thing.

You should check that your bank isn’t charging you too much on your home equity loan rate. Some banks charge a higher rate for home equity loans, so do a little mortgage comparison shopping before you sign anything.

How Do I Get a Home Equity Loan?

Home equity loans are generally available through most banks and lending institutions, however you should take some time to compare a few before you make a decision.

Our professional mortgage brokers are able to help you compare different home equity loans and find the right loan to suit your needs. Call an Origin Finance mortgage broker today to discuss whether a home equity loan is right for you.