Last Updated: 10th October, 2022
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We have a lender on our panel that has increased its maximum cash out amount to $500,000 if your LVR is less than or equal to 70%. You can cash out up to $250,000 if your LVR is less than or equal to 80%. No documentary evidence required in either case.
What Is A Home Equity Loan?
Home equity equals the difference between the current market value of your home and the total loan outstanding. Borrowing against your available home equity is called a home equity loan. There are two types of home equity loans:- Top-up loan: Combines into one account your existing home loan and new loans taken against the same property. Your loan account remains the same, so the loan term, interest rate and repayment cycle do not change. The only change is an increase in the repayment amount.
- Split loan: Divides into two separate accounts your existing home loan and a new loan taken against the same property. As you have a new account for the new loan, you can apply for a different loan term, interest rate and repayment cycle for that loan. Unlike with a top-up loan, you have to make two separate repayments.
You can access all or part of your equity to finance personal and investment property– related borrowings. Generally, you must have equity higher than 20% in your home to make borrowings against it.
- You pay a fixed interest rate. A change in market interest does not affect your repayment amount.
- You can consolidate all your personal and credit-card loans into a home equity loan.
- The interest rate you pay against your home equity is much cheaper than for any non-mortgage loans.
- Your interest payments may be tax-deductible.
- You could use the home equity to purchase an investment property or pay the deposit on an investment property.
- You may face a foreclosure risk. If you are not able to make repayments, the lender may seize the house you used as collateral.
- You pay closing costs if your home equity borrowing is any type other than a personal loan.
- You have to make two mortgage repayments–one for the existing mortgage and the other for your new home equity loan.
- You can get a new mortgage with better loan terms and interest rates.
- You can use the cash-out amount to pay off your high interest credit-card and personal loans.
- Replacing your existing loan with a new one makes the loan term longer (maximum 30 years), reducing your repayment amounts.
- You may face a foreclosure risk if you are unable to make repayments.
- As your loan term stretches out with the new mortgage, so does the period for which you make interest payments.
- Paying off your previous mortgage means closing costs, which can be thousands of dollars; however, if you plan to stay in your home for the long term, you can make up that increased cost in lower repayments.
- If you are using a cash-out refinance for debt consolidation, you risk lengthening the term of the loan more than necessary.
What Is Cash-Out Refinancing?
Cash-out refinancing is taking a loan to replace your first mortgage with a larger mortgage, and taking the difference in cash. You need to have some equity in your property to apply for the cash-out and it’s best if the value of your property has increased since you bought it. Cash-out refinance example: Your property is worth $180,000, and you owe $100,000 to your lender. You need to leave a maximum of 20% equity–$36,000–in the property as security after refinancing. So, the maximum amount you can refinance your mortgage for is $144,000. After paying the $100,000 for your previous mortgage to the lender, you can keep the remaining $44,000 in cash.Similarities Between Home Equity Loans and Cash-Out Refinance
The main similarity between cash-out refinance and a home equity loan is that you borrow against the equity in your mortgaged property in both cases. Whether you select cash-out refinancing or a home equity loan, you can walk away with a lump-sum cash payment. You usually cannot borrow 100% of your equity through either option; most lenders require you to leave some equity in your home.| Loan Type | Provides immediate access to cash via line of credit | Fixed Interest Rate | Fixed Monthly Payments |
|---|---|---|---|
| Home Equity Loan | Yes | Mostly yes but there are exceptions | Yes |
| Cash-out Refinance | Yes | Yes | Yes |
