Types of Equity Loans in Australia
An equity loan is a type of loan that allows you to borrow money against the value of your home. This means that you can use the equity you have built up in your home to finance other expenses, such as renovations, debt consolidation, or education costs.
There are two main types of equity loans in Australia: home equity loans and line of credit loans.
Home Equity Loan (HEL)
A HEL (home equity loan) is a lump sum loan that you repay over a fixed period of time, such as 10 or 15 years. The interest rate on a HEL is typically fixed, which means that it will not change over the life of the loan. This can be a good option if you need to borrow a large amount of money for a specific purpose.
To qualify for a HEL, you will need to have good credit and a minimum amount of equity in your home. The amount of equity you need will vary depending on the lender.
Once you have been approved for a HEL, you will receive a lump sum of money that you will repay over the agreed-upon period of time. Your monthly repayment will include both principal and interest.
Home Equity Line of Credit (HELOC)
A HELOC (home equity line of credit) is a revolving line of credit that you can borrow from up to a certain limit. The interest rate on a HELOC is typically variable, which means that it can change over time. However, most HELOCs have a teaser rate that is fixed for a certain period of time, such as 12 months. This can be a good option if you need to borrow money for a short-term project.
To qualify for a HELOC, you will need to have good credit and a minimum amount of equity in your home. The amount of equity you need will vary depending on the lender.
Once you have been approved for a HELOC, you will be given a credit card-like account that you can use to borrow money. You will only pay interest on the amount you borrow, and you can repay the loan at any time.
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Which Type of Equity Loan is Right for You?
The best type of equity loan for you will depend on your individual circumstances and needs. If you need a lump sum of money, then a home equity loan may be a better option. If you need access to a revolving line of credit, then a line of credit loan may be a better choice.
Here is a table that summarises the key features of each type of equity loan.
|Home Equity Loan
|Line of Credit
Up to a set limit
Monthly repayments of principal and interest
Interest only payments, with the option to make principal repayments
How to Get an Equity Loan
Following the following steps can help you get started on your equity loan journey:
- Shop around for lenders: There are many different lenders that offer equity loans, so it’s important to shop around and compare interest rates, fees, and terms. You can use a comparison website to compare different lenders side-by-side.
- Get pre-approved for a loan: Once you’ve found a lender that you’re interested in, you can apply for a pre-approval. This will give you an idea of how much you can borrow and what the terms of the loan will be.
- Provide the lender with the necessary documentation: To get a pre-approval, you’ll need to provide the lender with some documentation, such as your income statement, credit report, and bank statements.
- Get your home appraised: The lender will need to appraise your home to determine its value. The loan amount you can borrow will be limited to a certain percentage of the appraised value of your home.
- Sign the loan documents: Once the lender has approved your loan, you’ll need to sign the loan documents. The loan documents will outline the terms and conditions of the loan, such as the interest rate, the repayment period, and any fees.
Equity Loans vs Other Types of Loans
Equity loans have some advantages over other types of loans, such as:
- Lower interest rates: Equity loans often have lower interest rates than other types of loans, such as personal loans or credit cards. This is because the lender has the security of your home as collateral.
- Flexibility: Equity loans are more flexible than other types of loans. You can use the money for whatever you need, and you can repay the loan over a longer period of time.
- Convenience: Equity loans can be a more convenient option than other types of loans. You can apply for the loan online or in person, and you can often get the money quickly.
However, equity loans also have some disadvantages, such as:
- Risk: If you default on an equity loan, the lender can foreclose on your home. This means that you could lose your home if you’re unable to make the loan payments.
- Fees: Equity loans often have fees associated with them, such as application fees, origination fees, and closing costs.
- Tax implications: The interest you pay on an equity loan may be tax-deductible, but this depends on your individual circumstances.
Equity Loans for Australian Expatriates and Foreign Buyers
Equity loans can be a great option for Australian expatriates and foreign buyers who want to access the equity in their Australian home. These loans can be used to fund a variety of needs, such as:
- Home improvements: If you’re an Australian expatriate who’s returning home, you may want to make some home improvements before you move back in. Equity loans can be used to pay for things like renovations, new furniture, or appliances.
- Debt consolidation: If you have a lot of debt, an equity loan can help you consolidate it into one monthly payment. This can make it easier to manage your finances and save money on interest.
- Medical expenses: If you have a medical emergency, an equity loan can help you cover the costs. This can be especially helpful if you don’t have health insurance or if your insurance doesn’t cover the full amount of your medical bills.
- Retirement savings: If you’re an Australian expatriate who’s planning to retire in Australia, an equity loan can help you supplement your retirement savings. This can be a good way to make sure you have enough money to live comfortably in retirement.
Should You Get an Equity Loan? Ask our Experts
Equity loans can be a great way to access the equity in your home. However, it’s important to weigh the benefits and risks, including the costs associated with these loans before you apply for a mortgage.
If you’re considering an equity loan, it’s a good idea to speak to a mortgage broker, who specialises in equity loans, to get personalised advice. A mortgage broker can help you assess your situation and determine if an equity loan is the right choice for you.
Get in touch with one of our specialist mortgage brokers to get started.
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Frequently asked questions
The maximum amount you can borrow with an equity loan will depend on the value of your home and your financial situation. Most lenders will only lend you up to 80% of the value of your home.
The interest rates on equity loans are typically lower than the interest rates on credit cards or personal loans. However, the interest rates are variable, which means that they could increase over time.
The repayment terms for equity loans will vary depending on the lender. Most lenders will require you to make monthly repayments of principal and interest.
There are a number of fees associated with equity loans, including application fees, appraisal fees, and closing costs. It is important to ask the lender about all of the fees associated with the loan before you apply.
The amount of equity you need to qualify for an equity loan will vary depending on the lender. However, most lenders require a minimum of 20% equity.