Lending Solutions

An equity loan or home equity loan, is a type of loan that will let you borrow against the equity of your property.

Clients can increase their existing mortgage and get access to additional money by using the equity accumulated on their home. Unlocking equity is common in Australia as the rates on mortgages are one of the cheapest ways to access additional borrowing.

Each lender has different rules for what they will allow equity loans to be used for and how they will verify the purpose.

The most common uses for equity loans are:

• Debt consolidation. If you have a high-interest credit card, using an equity loan to pay for it is a good idea. It will not only simplify your payments by consolidating multiple accounts under one loan, but it will also lower your interest rate. Equity loans are secured – it naturally has a lower interest rate compared to unsecured debts like credit cards. If the equity can pay for your car loan or other personal loans, you can also consolidate all of them to simplify your debts.
• Minor property renovations. Another way that you can use this loan is to renovate your house. This is a great way to increase the value of your home. If the house is really in need of repairs and you do not have an emergency fund to pay it off, the equity of the house can be a great way to finance that need. It is important to note that the type of renovations will be at the lenders’ discretion as a construction loan may be deemed more appropriate.
• Personal Investments. You can use this to finance investment such as buying shares, add into your super fund or towards an investment property purchase.
• Business Use. It can even be used as capital to fund your business, buy inventory or as working capital.

There are many advantages to borrowing equity loans.

• Lower interest rate. This is a secured loan so the interest rate is already low to begin with.
• Flexibility. This loan can offer flexibility in how they access and spend their money. In the event of an emergency, people can quickly access money for a car expense or urgent building repair. In the event that it’s not needed, it can stay in their mortgage as redraw.
• Stability. Mortgages are typically long term and whilst their balance will be paid down over time, they are not subject to annual reviews and their loan terms are much more favourable compared to personal loans and business loans which normally have much shorter loan term frames.

Disadvantages of an equity loan:

• Puts the property at risk. The property or house is your security. You are putting that on the line by borrowing money against its equity.
• Paying for loan fees and charges. Borrowing on equity loan incurs fees and charges.
  All of these are costs which you will need to consider if an equity loan is the right loan for you.

Almost all products are available for equity loans but the most common loan types available are:

• Line of credit. This is a type of equity loan that is a revolving loan. If you apply for a $20,000 equity loan, that will be placed in an account that you can control. You do not have to use that right away. If you only need $5,000, you can borrow that amount. Whatever you borrow, that is the only amount that you need to pay off. It works just like a credit card in the sense that you do not pay for the money that you did not touch. The amount borrowed will be repaid in monthly instalments.
• Reverse mortgage. This type of equity loan is usually offered to seniors (60 years and above). If you need funds for retirement and you have a substantial amount of equity that can be used to give you the funds to finance your living expenses. The amount you get will depend on your age and the current value of the house. You have the freedom to decide how you want to get the funds (e.g. instalment, lump sum, etc). The interest will be calculated depending on the outstanding balance. If you haven’t taken the whole amount, you will not be charged interest for it. No repayment is required but the interest will continue to accrue and will be capitalized into the balance. This balance will only be repaid if you decide to sell your home, move into a health care facility (for the aged), or when you pass away. Usually, the sale of the house is payment for the balance.