Everything you need to know about equity
Date Posted: January 19, 2022
If you’ve been considering selling your current home and downsizing, chances are you’ve heard the word ‘equity’ mentioned quite a bit.
To help you feel totally informed as you weigh up the pros and cons of downsizing and if it’s the right move for you, we’ve put together some important information about equity – what it is, what it can be used for, and how you can harness it!
What is equity?
To put it simply, home equity is the market value of your home, minus the amount you still owe on your home loan. For example, if your home is worth $900,000 and you still have $300,000 left to pay on it, then you have $600,000 equity.
Keep in mind that the market value of your home is most likely not the price you paid for it, and that the market value of properties can fluctuate – and as a result, so can your equity.
How can you increase your equity?
You can increase your home equity in several ways, including undertaking renovations to increase your home’s market value, or reducing the size of your home loan.
If you’ve owned your home for a number of years, or if you live in an area of growth, your home can appreciate in value naturally, and so too will your equity.
How can you use your equity?
You can use your home equity to secure finance for a range of things, such as money to invest in other properties, shares or home renovations.
When you use your equity to secure finance, you are effectively increasing the amount you owe to your lender and using your home as security. For this reason, it’s important to consider the long-term implications of increasing your loan payments.
How can you free up equity by downsizing?
Making the move to a Downsizing Community can help you free up a considerable amount of equity that’s sitting in your current home. Essentially, you can sell your existing home and use that money to purchase a smaller, cheaper, low-maintenance home – thereby freeing up extra cash to spend as you like.
The proceeds from your existing home can be used to pay cash for your new home, pay off debts, supplement your retirement income, boost your super, or more excitingly, make your dream holiday a reality.
To learn more about the financial benefits of downsizing to a Land Lease Community, read our blog.
Photo by Tierra Mallorca on Unsplash