HOME LOAN ADVICE FOR AUSTRALIAN BORROWERS
Information, money saving tips and commentary on Home Equity Loans in Australia

Australian Home Equity Loan



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What is a Home Equity Loan?

A Home Equity Loan allows you to use the equity you have built up in your home as collateral for further credit and is characterised by flexibility and ease of use.

National property prices in Australia have surged by more than 50% over the last 5 years giving many home owners substantial equity to borrow against - Equity is the difference between what you owe on your home loan and what the property is actually worth.

Home Equity loans are commonly used to retire high interest consumer debt, to obtain a deposit on an investment property, to renovate and increase the value of the existing home, or to purchase expensive items like a vehicle or boat.

There are 2 main types of Equity Loans. There is the lump sum cash type where you get a lump sum for a particular project or investment where you start paying interest immediately. There is also the Line of Credit type where you only pay interest on the part of the loan you have drawn down on. Refinancing your entire loan is a third possibility for accessing your equity.

Equity loans used wisely to invest in assets that appreciate in value can increase your wealth, but inversely can result in greater debt when applied to items that depreciate.


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Home Equity Loan

Features of Home Equity Loans (Line of Credit)

The Line of Credit is essentially a second loan that is secured against your home, so you will get 2 loan statements each month. It is also possible to break the Line of Credit into sub-accounts. This enables you to keep accurate records for taxation purposes. Some of the features that give a typical Line of Credit Equity Loan its flexibility include -
  • maximum amount is usually 80% of valuation
  • minimum amount is usually about $20,000
  • redrawable up to your approved limit
  • can be used for any purpose
  • extra repayments allowed
  • funds can be accessed by most withdrawal methods
  • permanent loan facility
  • loan can be split into multiple accounts to simplify accounting for tax purposes
  • flexible repayments - only interest has to be paid monthly

Benefits of an Equity Loan (Line of Credit)

  • Draw down funds as required rather than as one lump
  • The redraw facilty means you have easy access to extra funds if required.
  • Increasing your repayments above the agreed amount can shorten the term of the loan and save thousands of dollars in interest.
  • You can vary loan repayments to suit your cash flow. Interest is compulsory and principal voluntary.
  • Paying wages into account reduces interest
  • You may never have to apply for another loan

Tips and strategies

  • Avoid loans with monthly account fees
  • Making weekly or fortnightly repayments pays your loan off faster than monthly payments because you are making 1 or 2 extra repayments per year
  • When interest rates drop retain current repayment levels
  • Have your wages paid into your loan account to reduce interest and use the interest free period on a credit card for purchases before paying the credit card bill from the loan account. Often you will be offered a Credit Card at the time you apply for your Home Equity Loan.
  • Put lump sum payments like tax refunds into your loan account. If required later, use the redraw facility.

Example Rates and Fees

Variable Rate Home Equity Loan NO FEES (June 2016):
  • Monthly fee NIL
  • Annual fee NIL
  • Redraw fee NIL
  • Extra Payment fee NIL
  • Fixing fee NIL
Low Rate 4.65% std. variable
CCR 5.10%*
*Based on $250,000 Loan over 25 years.

You can apply over the Internet and ask a Lending Professional for a free no-obligation quote on a Home Equity Loan.






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