Can you release equity from your home loan?
Did you know you can get an equity release on your existing home loan to invest?
An equity release or a top up loan is an additional loan on top of your current mortgage.
The amount you can release will depend on how much you have owing on your home loan and the value of your property.
Coronavirus / COVID-19: Equity Release Update
Some lenders have put restrictions in place on equity release to prevent borrowers from misusing funds during a possible recession. However, there are still lenders that can assist as long as you are using the funds responsibly, please contact us on 1300 889 743 or fill in our online assessment form to find out if you qualify.
Do I qualify for an equity release?
- Top up your home loan to 90% of the value of your property: Only available with select lenders and you need to show that you can afford the new loan amount.
- Purpose of the equity release: Use the funds as your deposit to buy an investment property, renovate your home, consolidate debts or invest in shares.
- Loan term: Your mortgage must be at least six months old.
- You must be in a good financial position: You need to have been making perfect mortgage repayments and have a good income compared to your level of debt.
- Waived Lenders Mortgage Insurance (LMI) at 90%: Available to eligible professionals if the existing home loan plus the equity release is 90% of the property value or less.
- No LMI at 80%: You don’t have to pay LMI on the increase if the total loan amount is less than 80%, regardless of your profession or income status.
- Avoid break costs on a fixed-rate mortgage: You can increase your loan if you’re on a fixed-rate mortgage and avoid break costs by splitting your mortgage.
- Discounts: Negotiated interest rates and reduced fees available to strong borrowers.
- Your credit file must be free of black marks: You can’t get an equity release if you have a bad credit history including defaults, judgments or missed repayments.
Call us on 1300 889 743 or complete our free online enquiry form to find out if you qualify for an equity release.
What can I do with equity release?
Lenders won’t accept all intentions for releasing equity. Acceptable purposes include:
- Releasing equity to buy another property.
- Minor cosmetic renovations and structural renovations.
- Cash-out to invest in shares or your business.
- Buying a business.
- Luxury purchases such as a holiday or car.
- Debt consolidation.
How much equity can I release from my home?
It varies from lender to lender.
The extra amount you will be able to add to your mortgage will depend on how much equity is available in your property, your Loan to Value Ratio (LVR) as well as your own financial situation.
The minimum increase amount is $10,000 to $20,000, whilst the maximum amount will depend on the lender.
If you’re releasing less than $10,000, you typically don’t need to provide evidence of the purpose of the release.
You just need to provide a stated purpose and complete an increase loan application.
How do I apply for an equity release?
You’ll need to apply for a separate application with your lender but, luckily, you don’t need to provide all of the documents that you needed when you first applied for your mortgage.
You just need to provide your last two payslips, a group certificate and evidence for the purpose of releasing equity (the latter only if requested by the bank).
What evidence do I need if I’m releasing more than $10,000?
The documents required will vary depending on the purpose of the equity release. Generally, you may have to submit these documents:
- Buying a new property: A letter from your conveyancer confirming you’re searching for a property or a copy of the contract of sale when a property is found.
- Debt consolidation: The last three months bank statements showing regular payments for each debt.
- Renovation and construction: Building contract/s, a copy of the quotes and specifications from the contractors.
- Shares and other investments: A letter or a copy of a plan from your financial planner.
How does the top up home loan process work?
Firstly, we need to find a lender that will accept your stated intentions for the equity release.
Next, we order a property valuation to check how much can be increased on your home loan and whether Lenders Mortgage Insurance (LMI) is applicable or not.
Once you apply for the increase and have been approved, your equity release will be transferred to you within 2-3 working days.
Did you know that we can order a free upfront valuation of your property with several lenders on our panel and choose the lender that gives the highest valuation?
This will increase your borrowing power and the amount of equity you can release!
Tell us a little about your plans by filling in our online enquiry form, and one of our mortgage brokers will get back to you with some loan top up solutions.
Can you top up if the total loan amount is over 80%?
Yes, you can, but you’ll be hit with LMI fees.
If your home loan is over 80% of the value of your property or 80% LVR, mortgage insurance kicks in, a one-off fee that most banks charge to mitigate their risk.
Luckily, LMI can be capitalised or added on top of your mortgage, so you don’t have to be it upfront. Instead, you pay it off over the life of the home loan.
Of course, it’s still a cost you should factor in when making a decision.
For example, let’s say you borrowed $435,000 against a property worth $500,000 2 years ago (87% LVR).
You could have paid up to $6,270 in LMI so the effective LVR would be 88.25%, so the loan amount is $441,270.
After a certain time, let’s say if your property value has risen to $520,000 and you’ve paid off $20,000 in mortgage repayments. Your remaining loan amount would be $421,270, and your LVR would be 81.01%.
Since most lenders allow you to release up to 90% LVR in equity, you could borrow another $46,730 on top of your existing mortgage.
Please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers will help you find out how much additional funds you can obtain to top up your loan.
How much LMI do I have to pay?
Usually, you pay no LMI if you borrow up to 80% LVR or less.
If you do, you’ll typically have to pay mortgage insurance on the difference between the new loan amount and old loan amount.
Let’s say that in the above scenario, you released $40,000 on top of the existing $421,270 loan balance bringing your total LVR to 88.71%.
You would have to pay LMI on 88.71% of the property value, which means you could be paying up to $8,524 in mortgage insurance. In this case, you’ll have to pay the difference in the LMI, i.e. $2,254 ($8,524 – $6,270).
If you’re refinancing with your current lender, LMI previously paid will be taken into consideration when calculating the new premium.
Call us on 1300 889 743 or complete our free assessment form and we’ll let you know how much equity you can release and whether mortgage insurance will apply.
Disclaimer: In the case of equity release, the exact amount payable in LMI can’t be determined beforehand as banks use different calculation methods, and we can’t ascertain the precise LMI amount. The above example is an indicative figure only.
Difference between an equity loan and a loan increase
Basically, these two are similar. Both allow you to borrow against the equity you have in your property.
With equity loans, you have to apply for a completely new home loan facility with its own features and interest rate.
With a top-up loan, you simply borrow more funds on your current home loan and add that amount to the existing loan amount, so the process is a lot quicker.
Golden tips for equity release
- Declare all of your liabilities because non-disclosure of your debts can lead to a direct decline of your application.
- Equity release is cheaper than taking out a personal or car loan as home loan rates are lower.
- Until you actually draw down the funds to use, you will not pay interest on your loan increase.
- Remember that it is a loan, so check your financial position and ensure that you will be able to afford the repayments.
- Determine the precise amount of funds that you require in order to avoid borrowing more than what you need and not being able to pay it back.
- Refrain from regularly borrowing more against your mortgage.
Apply for an equity release home loan
Call us on 1300 889 743 or fill our free assessment form to discover if you qualify for an equity release home loan.