What you need to know about releasing equity – Should I stay or should I go?

First things first – What is equity?

Equity can be defined as the value of your home minus how much you owe to the bank (debt).

Home value – debt = equity.

For example if you get an evaluation and it comes back that your house is worth $600,000 and you still owe $200,000 on it then you’re equity will be $400,000.

It’s important to note that if the value of your property goes up or down, the equity you have in it could also rise or fall in line with the new valuation.

Now what can be done with that equity you ask? Lots of things.

Equity is most commonly used for further investments be it property, shares or home renovations. Equity can also be used to make up for negative cash flow (trouble times) or just improving your lifestyle in general.

What is an equity release?

So we know what equity is, what’s an equity release?

An equity release, releases a certain amount of money that you have already paid off your mortgage to give you financial cushioning and the opportunity to take out further investments, renovations or lifestyle changes.

The amount you can release will depend on how much you have owing on your home loan and the value of your property. It will depend on how much equity you actually have.

Releasing Equity – Selling vs Holding – Do I stay or should I go?

Not too long ago the only way we could access home equity was by selling up.

These days, mortgages are flexible, and it’s possible to make use of home equity without selling a much-loved home. The general rule in Australia touted by most property investment gurus is: “Buy and never sell”.

Below we will give an outline to the pros and cons of selling vs holding.

Selling

The main benefit of selling is that you end up with a specific amount of money to work with when it comes to buying your next place. But there are a lot of additional costs which you will have to factor in and that can add up to be quite costly:

• real estate agent’s commission to sell your existing home
• stamp duty on your new purchase ($600k home will have to pay $30k stamp duty in Victoria)
• legal and conveyancing fees on the sale and purchase
• pest and building inspections
• repairs and maintenance on your new property
• moving costs.

Holding

If you held onto your current property as an investment, it could give you the benefit of ongoing rental returns and tax deductions, as well as a capital gain over time. Not too mention you will save a lot on stamp duty and other costs that come with selling.

If you like where you’re living it makes more sense financially to consider extending your property as opposed to selling and moving.

How to get ahold of your equity?

If you’re thinking about using your equity to either start out in a new investment venture, buy yourself something nice or to make up any negative cash flow, then how do you actually get hold of it?

If you’re selling, you’ll need to talk to your financial advisor or real estate agent.

If you’re holding, you’ll need to apply for a separate application with your lender but, luckily, you don’t need to provide all of the documents that you needed when you first applied for your mortgage. This will save you a lot of time and money.

You’ll need to provide a group certificate,your last 2 payslips and possibly some evidence for the purpose of releasing equity.

For more information and a free consultation book a call with me (Danny) now through this link https://calendly.com/dannymmoney/15min or by clicking the button below.