With strong capital growth in major metropolitan cities over the past few years, using equity in property has become a popular way to secure finance for property investment.
Property equity is simply the current market value of a property against the amount of mortgage owing. The value of equity grows over time as the value of the property increases and the mortgage is reduced. In addition, equity growth can be driven by renovation or improvements to a property or simply by your ability to pay down your mortgage.
Using property equity has become a popular way to secure finance for property investment.
How to calculate equity in a property
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The basic premise to subtract the debt remaining on a property from the property’s current value. For example, if your property is worth $600,000 and you owe $350,000, then the equity is $250,000.
But this does not mean you will have the ability to access the full amount – many lenders use a calculation on the amount they will be prepared to lend against, to minimise risk. Often, they will use a calculation based on an 80% LVR (loan value ratio):
Property value - $600,000
Amount owing - $350,000
Equity - $250,000
LVR – 80%
Lending capability - $200,000
Used wisely, this equity can be used to secure the finance needed to achieve your property investment goals, for example as a deposit on a future property purchase.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.