Home equity: Are you using it to your advantage?
Research released late last month has found just 11 per cent of homeowners are looking to use their home equity to their advantage, which means they could be missing out on some of the long-term wealth generating benefits of buying a property.
Westpac General Manager of Retail Banking Gai McGrath said it was surprising to see such a low number of borrowers interested in utilising their home equity, which means many Australians are simply leaving money on the table and not taking advantage of an opportunity to begin working their wealth towards building a nest egg for their.
Home equity is the part of a property that is outright owned by someone, as opposed to however much is left to repay of their home loan balance. Naturally, this begins to grow as time goes on and more repayments are made. The report found that the average length of time for people to be paying back a variable home loan on their residential property investment is between 21 and 30 years (79 per cent) - and a quarter (23 per cent) of those interviewed were around midway through this period.
Ms McGrath said that by this point in their mortgage's lifetime, there are a number of things that the equity can be utilised for. Some of the more common strategies include upgrading into a larger home, renovating to increase the value of the property, purchasing an investment property or looking potentially taking a repayment holiday if a big life event is coming up. However, 67 per cent reported they were more focused on paying off their home loan as soon as possible.
"While some borrowers are looking to use their equity, there are also many Australians who are determined to pay off their home loan sooner and become true home owners," said Ms McGrath in a June 28 statement.
"To this end, we encourage people to use features in their home loan like offset accounts or increase the frequency of their repayments. It still surprises me that more than half of borrowers do not use an offset account, yet it is one of the simplest ways to reduce the interest and term on a loan."
Regardless of whether you're interested in paying off your home loan as soon as possible or reaping the benefits of home equity, it could be worth getting in touch with your mortgage provider to discuss the overarching health of your home loan and make plans for the future moving forward.