What is Equity?

June 19, 2014
Soula O'Meara

What is Equity?


Equity is a term credit providers use to define how much residual value you have after they deduct

the loan amount from the property value.   In other words how much of the property you own.




If the Property Value is  $500 000  minus the  Loan amount $400 000 =   $100 000 Equity for the property owner


This is usually expressed in percentage figure.


In this example the Bank holds 80% of the properties equity and the other 20% is held by the customer.


Equity is important:


  • Determines if/what fees and charges the credit provider my charge such as lenders mortgage insurance.


  • Might influence the interest rate charged


  • Determines the risk rating for lending the customer money, the lower the customers equity the higher the risk and the less likely a credit provider will lend funds.


  • Excess equity can be used as security to lend more money


  • Equity can be used to purchase another property without the need for a deposit.



Equity can be used to create wealth for the future, with the interest rates being at a historical loan this could be a time to investigate using your equity to secure your future.


Please call Soula on 0414 843 060 or email soula.omeara@mortgagechoice.com.au for further information.

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