What is equity in the property?
Simply equity in a property is the difference between the current market value of your property and how much you owe on it.
For example:
If your home is worth $1,000,000 and the current debt on her home loan is $500,000, then you have $500,000 worth of equity in your house.
So while you may have thought of your home as a never-ending series of monthly loan repayments, with every payment you make, you are building up your equity and over the last couple of years, with the market pushing property values, your home equity is lucky to have grown considerably.
HOW TO CALCULATE YOUR USABLE EQUITY
Keep in mind that it’s possible to borrow more than 80% if you don’t mind incurring the cost of mortgage lender’s
insurance.
Assuming you stick to the 80% ceiling, let’s do the sums to work out how much you can actually borrow:
- Your home’s value ($1,000,000) x 0.80% = $800,000
- Your debt is $500,000, so subtract this from the amount the bank will lend up to $800,000 and you are left with $300,000.
- This means you have $300,000 is usable equity.
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