Some Australians use their existing home equity to realise their investment goals, too. However, it appears that not everyone's in on this clever approach.
Are Australians missing out on wealth-creation opportunities?
The Westpac Upgraders Report shows that just 11 per cent of borrowers across the country are looking to utilise their property's equity in order to upgrade.
"It is surprising to see the low number of borrowers looking to use the equity in their current home, meaning some Australians could be missing out on an opportunity to build their long term wealth," explained Westpac General Manager of Retail Banking Gai McGrath last month.
The right time to use equity
A property's equity is the difference between its value and the remaining mortgage debt. If a house is worth $550,000 and the borrower owes their lender $100,000, the equity in the property is $450,000.
Ms McGrath recommends that homeowners tap into their equity when they're at the mid-point of their home loans. According to the Westpac report, 79 per cent of variable home loan terms are 21 to 30 years. Of this, 23 per cent are around halfway through their loan term, with five and 14 years of the loan term remaining.
"It is at this mid-point that there are often several ways you could use the equity in your home," Ms McGrath notes.
"Common strategies include leveraging the equity in your property to upgrade to a larger home, purchasing an investment property, renovating your property to increase its resell value or even taking a repayment holiday".
If a property has increased in value, the equity increases alongside this, too. Many homeowners could be sitting on a goldmine of investment opportunities, without even realising it.
The earlier you act, the better. Obtain property investment advice now to see the potential for the future.
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