You’ve heard it before – low interest rates etc – and sure, that part of using equity is incredibly timely and worth looking at, but what’s the best way to access your equity? As it turns out, different lenders offer different methods for borrowing against equity.
We should note first that some banks are beginning to cautiously raise their base rates, but despite this, there’s still plenty of great rates if you know who to talk to (that’s us). Interest rates remain an important consideration because the right rate on your mortgage can help you maximise how you can USE the equity in your home.
But, let’s get back to the how … Let’s look at some of the various ways you can access equity that both free up cash in your life and potentially set you up to move forward in a better position.
Some lenders offer what’s called a “supplementary loan”. It essentially allows you to create a separate loan that you can use how you wish – new car, reno, investment, whatever. But, instead of jumping into a high-interest personal loan or other product, you’re taking advantage of the equity in your home as security.
This simply means, you’re pretty much getting home loan rates on your supplementary loan.
There are conditions to what you can borrow in the supplementary structure, so it’s best you understand your goals before going looking for this kind of loan – we can help there.
Some other mortgage products offer a redraw facility. It doesn’t so much depend on the actual equity in your home, rather the difference in your required repayments VS what you’ve repaid. So, if you’ve been paying an extra $50 a week on your loan for a few years, you may have the ability to draw that money back.
Be careful with this however … that extra repayment is working to reduce the interest on your loan and if you take it all out, it’s important to remember that the interest part of your repayment will increase because you are now paying interest on a higher loan amount.
A redraw may be cheaper than other loan products, but it’s worth digging into the details to make sure that’s the case.
Depending on how much you have available to redraw, you might choose to use a facility like this instead of accessing the equity in your home to pay for that car, reno or investment. Again though, our advice is that you speak with one of our lending specialists to help you assess the options available to you.
This again, is pretty much a different way of saying “refinancing your mortgage”. It can certainly be a good way to free up some extra money when you need it or enable you to access the equity in your home to buy an investment property, new car or start that renovation you’ve been talking about.
Just like refinancing your mortgage, a “top up” is dependent on how much equity is available in your property, as well as your current financial situation.
One of the key positives to a top up is that you’ll only pay interest on the amount of the top up you use, not the entire amount (at least with most lenders). For instance, you may be undertaking a renovation and your initial deposit to the builder is 50% of the total top up – you’ll only pay interest on that amount until you part with the other half of the money you’ve applied for. Not a bad situation.
Is there a “best” way to borrow?
The answer is: it depends.
Any kind of loan, whether it’s refinancing your mortgage or applying for a car loan should be done with your specific circumstances considered. We approach every situation as if it’s unique. We start fresh to understand your situation before recommending the best approach for you.
As a mortgage broker, we’re bound by law to act in your best interest, and that’s exactly what we do best. We won’t offer you general advice that leads you into one path, we’ll present you with the options and the reasons each is worth considering before moving forward.
If you’re considering accessing the equity in your home and want help deciding the best way to do that, speak with our team – we’re here to help.