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Renovate or Invest? How 7-In-10 Australians Are Using Their Equity

renovate or invest

Seven in 10 homeowners have recently used their equity in their home to renovate, invest in property or shares, or boost their superannuation. Have you thought about how you could take advantage of last year’s property price spike?

Have you heard that property prices spoked 23.7% in 2021? That is quite the growth spurt! So, how do you take advantage of that growth without (or before) selling your home? Well, one way to do so is to cash out equity while property prices are high.

According to NAB research, three in 10 mortgage holders have recently done just that and have used the money to give their home a facelift by renovating. Other popular options include using unlocked equity to buy an investment property (16%), invest in shares (12%) and boost super balances (8%).

How Does ‘Cashing Out Equity’ Work?

Let’s say you bought an $800,000 house three years ago, that due to last year’s property price surge, is now worth $1 million. And let’s also say you took out a $600,00 loan for that house, which you have managed to pay down to $500,000. By refinancing that $500,000 loan into a $700,000 loan (70% of your property’s new market value), you can unlock $200,000 in equity to help fund a deposit for your renovations or to buy an investment property.

It is worth noting that banks will typically let you borrow up to 80% of a property’s market value. So, if you upped the ante and refinanced to an $800,000 loan, you would be able to unlock $300,000 in equity.

 Want to Find Out More About Unlocking the Equity in Your Home?

We would be more than happy to sit down with you and help you work out how much equity you can unlock. And if you decide to proceed, the good news is part of the process can include refinancing your home loan.

Why is that good news? Well, just because interest rates are going up, does not mean you can’t scope out a better deal on your mortgage. Competition amongst lenders remains fierce, particularly if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.

If you would like to explore your options when it comes to unlocking the equity potential in your home, get in touch as we would love to help you crunch the numbers.

Frequently Asked Questions

What is 'Cashing Out Equity' and How Does It Work?

Cashing out equity means refinancing your existing home loan to unlock the increased value of your property. For example, if your home's value has risen from $800,000 to $1 million, and you've paid down your $600,000 loan to $500,000, you can refinance to a $700,000 loan to unlock $200,000 in equity.

What Are the Popular Ways Australians Are Using Their Home Equity?

According to NAB research cited, 30% of mortgage holders have used their home equity for renovations. Other popular uses include buying an investment property (16%), investing in shares (12%), and boosting superannuation balances (8%).

How Much Can I Borrow Against My Home's Value?

Banks will typically let you borrow up to 80% of a property's market value. So, if your home's value has increased to $1 million, you could potentially refinance to an $800,000 loan, unlocking $300,000 in equity.

Can I Get a Better Mortgage Deal While Refinancing?

Yes, even though interest rates are going up, competition among lenders remains fierce. If you have a decent amount of equity and a strong track record of meeting your mortgage repayments, you may be able to find a better deal on your mortgage.

How Can I Find Out How Much Equity I Can Unlock?

Financial experts can help you work out how much equity you can unlock. They can also assist you in the refinancing process, which can include finding a better mortgage deal.

What Are the Risks Involved in Cashing Out Equity?

It's important to consider that refinancing to unlock equity increases your loan amount, which could lead to higher monthly repayments. Always consult a financial advisor before making such decisions.

Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business. 

About the Author:   

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.   

Connect with Louisa on Linkedin.   

Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).    

Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.  r-less normal distribution of letters. making it look like readable English.

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