Why home equity can be the basis for a solid investment
Recently updated on January 11th, 2023 at 11:21 am
The equity you have in your home can become the basis for an investment, expense or project. Commonly, a home equity loan is used to provide the money needed to make repairs or improvements to your home. It can also be used for other purposes, such as paying off large, unexpected bills, or funding education. In this blog post, we will discuss some of the reasons why Australian borrowers are using home equity loans for personal or business requirements.
But, first, the basics:
What is home equity?
Home equity is the portion of the total value of your home that you own outright. One way to look at it is to view it as the difference between what your home is worth and how much you still owe on your mortgage.
Why consider a home equity loan?
Usage of home equity loans
A home equity loan can be used for any purpose, including home repairs or renovations, as a deposit to purchase a new property, for tuition or for medical expenses. Home equity loans are an increasingly popular type of finance as they can be used for a broad range of purposes.
Elements of a home equity loan may be tax deductible, pending its use. An accountant is ideally placed to provide clarity on the respective tax benefits.
Borrowers quite often consider a home equity loan to consolidate multiple high-interest debts (such as credit card debts and/ or personal loans). Refinancing debts into a lower interest rate means that you pay less on your monthly payments.
Lower interest rates
Home equity loans usually have lower interest rates than other facilities, such as credit cards or personal loans.
Know the risks involved in home equity loans
With all types of funding, it’s critical that you’re in a position to comfortably pay the loan. A home equity loan is ‘secured’ debt. When you take out a home equity loan, you are borrowing against the value of your home, and using that money for other purposes. If you default on the loan, you run the risk of foreclosing on your home. This means that the lender can take back your home if you are not able to repay the loan. It’s always wise to involve a mortgage broker and accountant with any loan decision.
Secured loan versus unsecured loan: what is the difference?
The main difference between a secured loan and an unsecured loan is that a secured loan is backed by collateral (i.e. your house), whilst an unsecured loan is not. That means if you default on a secured loan, your lender may take possession of the collateral.
Should I take a home equity loan?
As mentioned above, it’s wise to involve a mortgage broker and accountant with any loan decision. Home equity loans are highly flexible such that they can be used for any purpose.
If you are thinking of taking out a home equity loan, there are several things to consider before making your decision, including:
- Make sure you understand the interest rates, fees, and terms of the loan.
- Remember that a home equity loan is secured against your house.
- Be sure you can comfortably afford the monthly payments.
- Check in with your finance broker and accountant to ensure that they are supportive of the decision.
How to apply for a home equity loan
Applying for a home equity loan at Mango Credit is easy. You just need to provide some basic information about yourself and your property. Once you have been approved, you will have access to the funds you need quickly and easily.
Here are a few tips to help make the process as smooth and efficient as possible:
- Gather all of the necessary documentation before starting your application. This includes things like your most recent council rates notice and your most recent existing mortgage statement (if you have a mortgage).
- Have a clear idea of how much money you need to borrow. Home equity loans are typically for larger amounts, so make sure you know exactly how much you need before applying.
- Be sure to be able to clearly identify your exit strategy (how you’re going to repay the loan). For instance, this may be the sale or refinance of your current property.
- Fill out our application form online, along with the required documents.
A home equity loan can be useful for personal or business uses, such as renovations or purchasing a home in Australia. The loan is secured against the value of your home.