Home Equity - A Guide for First Time Borrowers

Many property owners probably can't claim to have built their home, yet most if not all are in the process of building something else: their home equity.

If you are new to the world of mortgages you may be wondering what this strange and mysterious substance is, and what you can do with it.

Well it grows no matter what the weather is like; it's invisible, but one day you may be able to touch it; and it doesn't have mass, yet it could weigh heavily on future financial decisions.

Luckily for you, today we dispense with the riddles and reveal all about home equity!

What is equity?

Let's start out with a simple definition. Your home equity is the difference between how much your home is currently worth and what you still owe on your mortgage.

When you first buy a property, the amount of equity you hold will be equal to the value of your deposit. Then, as you pay back your loan principal gradually, your equity will increase.

That's not the only way that your equity can be boosted, however, as this also happens when your home increases in value.

Thus there are two ways to grow your equity: one that is under your control, and one that is more dependent on external factors in the property market.

What can I do with my equity?

Once you've built up some equity in your home, you may then be able to use it to secure a competitive home equity loan.

The amount that you can borrow when refinancing to access your equity will depend on how much you have amassed.

Home equity loans generally come as a line of credit, which functions much like a credit card, allowing you to withdraw money as you need it, up to a set limit.

They can help you pay for home renovations or other large purchases such as a car or a holiday, or for unexpected expenses such as property repairs or medical costs.

Learn more about your equity

A mortgage broker can help you find out exactly how much equity you have built so far in your home.

They can then discuss your financial goals and whether a home equity loan may be a good idea for your situation.

As well as explaining the benefits of accessing your equity, they can help you to make an informed decision by weighing the costs and responsibilities that come with any refinancing scenario.

A home equity loan, like any debt, requires financial discipline to maintain and shouldn't be entered into lightly.  Getting some expert advice on your options is a no-brainer!