Understanding Equity: Your Key to Financial Opportunities

Equity, in lending terms, is the net value of your property after taking out existing mortgage balances.

Bearing in mind that lenders adopt a loan to valuation ratio (LVR) of 80% of your property value (90% if you want to pay mortgage insurance or meet certain professional employment criteria), the equity value that a lender applies is scaled back to reflect that 80% LVR.

Take a home worth $750,000 with a mortgage of $350,000 – you have $400,000 in equity built up. Adopting the 80% LVR rule from a lender perspective your usable equity is:

$750,000 x 80% = $600,000, subtract $250,0000 = $250,000.

This equity then allows you to:

• Leverage the value of your property to buy additional investment properties (commercial or residential)
• Complete renovations; add a pool; add a granny flat
• Draw on cash to invest in shares or managed funds
• Help a family member by providing a guarantee to help them purchase a home

When its used to build your wealth, equity can be a very powerful tool.

If you would like an idea of what your equity is and what it means for you in terms of growing your wealth, contact Katrina at Central Coast Mortgages to book an appointment today.

‍