All about equity
What is equity?
It is basically a difference of amount between what you have paid for your property and the current value of that property. Just for an example – If you have bought your property for $100,000 and today’s current value after a certain year, let’s say 5 years is $150,000. So, the difference amount $50,000 is your equity, which you can borrow from bank after current valuation and you can purchase another property using that fund.
How can I calculate equity?
You can calculate home loan equity by knowing the difference between your current value of investment and the amount which is remaining to pay towards your loan.
The formula looks like this –
Current value – Remaining loan balance = Equity
For an instance, if your home current value is $100,000 and you have 40% remaining to pay which is $40,000 then your equity will be $60,000. However you would not be able to access this whole $60,000. Then how much equity can be accessed? You can only access 80% of this amount to borrow back which is $48,000 in this case without being charged for LMI (Lender’s Mortgage Insurance)
What you can do with equity?
If you have sufficient equity from your property, as an investor you can access up to 80% of your equity which means if you have $200,000 of equity so you would be able to borrow $160,000 in this example.
You can invest the equity as a full or a part in another investment plan that could be either home investment, property investment or any other investment. Even the equity which you will have, you can use them for your home fixtures, home refurbishing, refurnishing, or Car loans or may be a holiday with family. Usually this type of equity when used are less expensive than other forms of credits.