As a homeowner in a red-hot market, you can pursue two different avenues to maximise the benefit of this once in a generation boom. You can either sell up, take the profits, and explore the purchase of another property – a risky option as you do have to purchase in the same market, or you can unlock the power of your equity!
What do you mean ‘to unlock the power of my equity’, you ask? Well, it’s very simple – if you purchased your home a few years ago, have been paying your mortgage payments, you’ve been building equity in your home.
This tied in with the year on year growth in your property (which can be as much as 25% in growth if you live in Brisbane) means the value of your home is probably far more than what you currently owe on it (and in some cases, you might not owe anything).
The difference between what you owe and what the home is worth is equity, and this is something you can use to renovate your existing home or purchase an investment property (covered in an upcoming article).
A good case study, say you purchased a property in Albany Creek in 2007 for $360,000, and over the past 15 years, you’ve been paying your mortgage on this property to the point you now owe $220,000.
Based on the original purchase price, you would have $140,000 of equity in the home. However, the market has since moved on, and the average price in Albany Creek in 2022 is now approximately $860,000.
Given what you currently owe and the median house price in Albany Creek, you would now commission a bank valuation by your lender on the property. They would assess recent comparable sales and other metrics to develop a formal bank valuation of your property.
Once that valuation comes in and says it’s close to the median price at $850,000, your equity in the home would come in at $460,000 if you were to get a loan at 80% of the value of your property. Remember, this scenario is dependent on you accessing equity to improve your property.
This could mean a new kitchen, an extension out the back, raising your property, building a pool, and many other things that will enhance the property. Of course, these are all subject to bank approval, and you would be required to provide acceptable quotes to the bank, who will then determine what funding facilities you have access to.
There are many benefits to unlocking the equity in your existing home versus selling/purchasing a new property. Obviously, you do not have to pay real estate agents or Government fees (Stamp Duty etc.), but the major pro for this approach is that if you like living in the area, you can upgrade your house to meet your current life aspirations!
So, if you’re ready to upgrade your digs and leverage the power of your equity, get in touch with the MAW Money team – they’ll be able to assess your current financial situation and design a package that best suits your scenario.