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Accessing the equity in your home

Oktay Sengoz

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25/10/2022

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1 min read

If you have purchased property in Australia (some parts) before, you would have seen the value of the property increase over time.

This is your gain, or also known as your equity.

Many use their gain or equity to do other things like purchase a new car, open a business, renovate, consolidate debt or purchase an investment property.

How do you get access to the gain or equity?

There are two ways to get access to the equity.

You can either sell your property and access the gain as sale proceeds

or

Refinance your loan and redraw on your equity.

If you sell, you pay capital gains tax on the gain. But if you don’t sell, you can access the equity without paying capital gains tax, while still enjoying the proposed growth in the property.

Here are 3 things to consider when refinancing for an equity release

Determine the purpose of the funds

This is the first step in working out if redrawing is the right option for you. i.e., many will use their equity to purchase a car. The problem with this is that many people are left with a loan on their car even after they sell it because they make the minimum repayments (over 30 years rather, but sell the car in 5 years). In this situation, you may be better off with a car loan. If the redraw or equity is to start a business, you may better off with a business loan instead.

Understand your new repayments

You should understand the proposed repayments before even applying to access your equity. If you have had your loan for a while, you could be used to low repayments. Doubling your repayments or a potential interest rate increase could shock your budget.

Understand the impact of the redraw on your loan term

You may have had a goal to pay off your loan over a certain time. Refinancing your loan may mean that you need to extend your loan back to 30 years to make the repayments manageable. This could put you back a few years in reaching your goal in paying off the loan. If it's your family home, this could mean a lot to you.

Talk to us today to see how much equity you have to redraw.

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