You’ve probably heard the term ‘equity’ used from time to time when your friends have discussed the value of their home or their future financial plans. But what is it exactly? Well, in property terms, equity is defined as the difference between what your property is worth and how much you owe on it.

For example, if your home is valued at $650,000 and you owe the bank $350,000, then you have $300,000 in equity.

Great! $300,000 is a lot of money, so what can you do with it? Provided you can afford to pay the bank back, you should be able to access some of this $300,000 equity to purchase large scale items like a car, home renovations or even purchase an investment property.

However, you will only be able to access some of the $300,000 because Banks typically will only lend up to 80% of the property’s value. So, using the example of a home valued at $650,000, a bank should be comfortable lending $520,000 (80% of $650,000) against this property. Don’t forget, you already have a loan of $350,000 so the bank should lend a further $170,000, bringing the total debt to $520,000.

Now you have access to $170,000.

This is how most people who have purchased their own home, secure a deposit to buy their first investment property. Using the equity in your home is also a great way to pay off credit card debt or car loans which attract far higher interest rates.

ONE OF THE BIGGEST FINANCIAL FAUX PAS YOU CAN MAKE IS TO HAVE 'IDLE EQUITY'. MAKE SURE IT IS WORKING FOR YOU AND NOT SITTING IN THE VAULT COLLECTING DUST

So, If have decided it is time to start investing in property, accessing your equity is a great place to begin.

If this is something you have been thinking about, or would like to know more, reach out to our team now!