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 $350,0000 = $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, hit us up for a chat and let’s make this year, the year to get ahead.

At North Coast Lending we specialise in home mortgage broking, business finance & equipment finance, located on the Coffs Coast.