Home Equity Loans

The upside of a home equity loan:

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HOW TO ACCESS THE EQUITY IN YOUR HOME

Let’s look at short-term home equity loans – what they are, the benefits of using them, and common uses for quick access to funds for 2 to 36 months.

What is a short-term home equity loan?
A short-term home equity loan uses the equity you have in your home to provide you with funds for a variety of purposes (equity is the difference between the current ‘fair market value’ of your home, less any mortgages or other loans secured by the property).

A short-term home equity loan can be obtained if you have an existing mortgage, or own your home outright. For example, if you have a mortgage loan of 50% of the current value of your home, a short-term home equity loan allows you to access some portion of the equity you own (being the other 40% of the current value). It is important to bear in mind that there will be a limit to the amount of equity you can access or borrow against. Generally 70% of the property value minus any existing debt secured against the property.

Traditionally home equity loans were for longer periods (often 5 years to 15 years). Though it’s becoming increasingly clear that longer term loans do not always suit everyone’s circumstances – particularly for borrowers who may only need access to funds for a shorter period of time.

The good news is that there are a number of alternative and private lenders in Australia who provide short-term home equity loans, which typically have a duration of 2 to 36 months.

The benefits of using a short-term home equity loan
Home owners achieve equity based on their initial deposit, the component of principal paid in regular mortgage payments with a principal and interest (P&I) loan, and any increase in the value of the property over time. Typically, if you’ve owned your home for a number of years, it is likely that you have built up some additional equity.

Short-term home equity loans offer a range of benefits to Australian home owners:

  • They offer low interest rates compared to alternatives such as personal loans or credit cards.
  • You can access a large amount of money in a short time.
  • They are readily available from a variety of lenders, including private lenders.
  • They often require minimal paperwork and you can often apply online.

Why you might take out a short-term home equity loan
There are a number of reasons home owners may consider a short-term home equity loan to access funds quickly, including:

  • Renovating your property: using a short-term home equity loan for renovations that add value to your home is one of the most common uses for this type of funding – particularly in preparation for the property’s sale.
  • Purchasing an investment property: a short-term home equity loan is often used as a deposit for an investment property, with an additional mortgage secured by the new property.
  • Paying a large bill: a short-term home equity loan may be used to pay a one-off large tax bill, or assist with ongoing school fees.
  • Debt consolidation: a short-term home equity loan may be used as an alternative to paying off personal loans or credit cards that have high interest rates.
  • Share investment: a short-term home equity loan is increasingly used to acquire publicly-listed shares.

A short-term home equity loan can also be used for business purposes, including the purchase of stock or equipment, paying wages, and general cash flow needs.

Key takeaway
If you have built up equity in your home (via repayments and an increase in property value over time) and you need access to a large amount of funds quickly, a short-term home equity loan may be worth considering. You can apply online for a short-term home equity loans. This form of funding can be used for a short period of time (2 to 36 months) for a variety of purposes.