Equity is the difference between your property’s value and how much you owe on it.
In other words, if you sold in today’s market, how much you would walk away with in your pocket.
In a red-hot property market, your equity will feel like it’s increasing by the hour, whereas elsewhere it could take a bit longer.
Down the line, equity can be used to borrow a larger amount to buy your next home, to renovate, or as a deposit to buy an investment property.
How to build equity:
- Other than waiting for the property market to rise around you, one way to build equity is to pay off the principal amount on your mortgage. The faster you reduce the amount you’ve borrowed, the faster you’ll gain more equity.
- By getting a low interest rate on your mortgage you can pay more on the principal, and less interest to the lender.
- There are a number of smart ways where structuring your mortgage – choosing from fixed, floating, capped, revolving and more – can help you pay it off faster.
- Ask your lender, mortgage broker or an independent financial expert on the best structure, terms and length of your mortgage to make the most of the current interest rates and trends.
- Adding value to your house by making improvements can also improve your equity when you come to sell, but be careful not to over-capitalise in a slower property market – you probably won’t get your money back on that lush marble kitchen and tropical outdoor pool with bar.
Finally, mow the lawns, clip the hedges and look after your home. Keeping up routine maintenance will help to add or at least maintain its value.