What can you use your equity for?

How can you use your equity explained

What can I use my equity for?

What can I use my equity for?

Alright, been getting a lot of questions lately around equity. What is it, how can I use it, etc. etc.

Let’s break it all down. First of all, what is equity? So we’ve got an asset, let’s say it’s our own home that we live in, that has a value of $500,000. We can use up to 80 percent of the value of that home, according to the banks. Minus our debt, means the usable equity. So
$500,000 times eighty percent is $400,000 minus our debt, let’s say is $300,000 for today’s example, means that we have $100,000 of usable equity, that we can go and do something with. Now, first of all the banks need to see that we can service that ie through our income. They assess our assets and liabilities, income, debts all those
things. So provided that we can service that, the banks will allow us to take that $100,000 of equity. Now, as soon as we use that, we pay interest on it. It’s not free cash to come and go as you please, so you pay interest on that $100,000 as soon as you start using it.

So, secondly, what can we use it for? Now listed some common ones in people’s lives. Car, boat, pool, holiday, shares, investment properties, school fees and renovations. So, can I use it for any of those? The answer is yes! You can go and use it for what you absolutely want to.

Now, the third part of it is, is it financially wise to go and do that, or is it just simply a lifestyle enhancement choice? So, let’s circle those lifestyle ones. Car, in most cases we buy expensive ones or ones that are too expensive for our means and we have trouble repaying. Boat, definitely lifestyle. Pool, lifestyle, especially if you’ve got kids, bit of an emotional thing, big blue babysitter etc, etc. Holiday, lifestyle. Shares, NOT lifestyle. Property, NOT lifestyle, but enhanced wealth further down the track which will hopefully improve our lifestyle, right? School fees, lifestyle in a lot of cases. Renovations, lifestyle but also improving the value of our home. Now, does the pool improve the value of our home? Depends who wants to buy it, or depends what the valuer realizes when they come out to value it, okay. So, equity, getting an understanding of what it is and how we can use it and then finally what we can do with that equity, but then finding out what’s the wise thing to do with that equity. Hope that makes sense to you. For those out there that need more, let us know.