Utilising The Equity In Your Home
April 21, 2022 at 3:19 PM
TIP: If you wish to top up your home loan or want to purchase another property without selling your home, then check what equity you available.
WHAT IS EQUITY?
Equity is the difference between the value of your property and the total amount of home loans you have against it.
Here is a simple example.
James has a home valued at $500,000 and it is mortgaged to ANZ. James total ANZ home loans comes to $300,000 which means he has $200,000 equity.
HOW CAN I USE THE EQUITY?
If you are looking at borrowing from your bank using the equity you have available, then the banks use the maximum equity available as part of their assessment criteria.
NOTE: Banks and Lenders will not advance 100% of the equity you have available in your home. In James example, he will not be able to get $200,000.
They will work out what the current Loan to Value Ratio (LVR) is of your property and will extend a loan to the maximum LVR for your property. The maximum LVR of your property varies depending on the type of property it is e.g Residential, Lifestyle Block, Apartment etc..or whether is it your Home or an Investment property?
So using the simple example above of James.
ANZ will allow James upto 80% LVR against his home. James' home is valued at $500,000 and so the maximum he can borrow against it is $400,000. James already has a home loan of $300,000 so this means he has enough equity to borrow a further $100,000.
How to work out LVR:
Total lending / Value of your property X 100 = LVR%.
HOW TO VALUE MY HOME?
There are many methods to value your property when applying for a top up.
- Government Valuation. To obtain a free government valuation, visit your local council body website. You may also find it on free valuation services such as www.propertyvalue.co.nz or www.oneroof.co.nz etc.
- Desktop Valuation. A desktop valuation is an automated computer valuation done using property data, recent comparable sales and property listings. There are a number of platforms banks will use such as Corelogic or Valocity. To obtain your desktop valuation you can either get this from your bank or ask us to complete one for you.
- Registered Valuation. A Registered Valuation involves a registered valuer visiting your home to assess the market worth of the house. They will conduct a full inspection of the property inside and out. They will also look at the property title, comparable sales etc..and provide you with a market value. This will cost you and it will vary depending on the type of property, its location, the urgency involved etc.. You will need to first check with your bank or Mortgage Advisor to find out how to purchase a registered valuation as the banks have a preferred method of ordering these.
- The banks do not use or will accept free valuations offered from websites such as propertyvalue.co.nz or oneroof.co.nz or trademe insights etc...1-3 above are the most preferred.
One thing to note. The valuation methods from 1-3 have a shelf life. This means that the bank may not use a Registered Valuation that was completed 2 years ago or a Desktop Valuation completed a year and a half ago.
DISCLAIMER: When applying for a top up, you must meet all of the banks lending criteria. In essence, just because you have the equity does not guarantee an approval from your bank. Things such as Affordability, Character, Account Conduct etc..forms part of their full assessment.