How to build value in your property to draw equity

How to build value in your property to draw equity

If you’re living in Melbourne or another large Australian capital city, there’s no doubt that you have a high mortgage. With that being the case, you’d be well placed to work towards increasing the value of your property so that if you need to, you can draw equity.

There are dos and don’ts when it comes to this.

The first thing not to do if you want to increase the value of your property is to build an in ground pool. Although many people do like having a pool on their property, they can decrease the value for some potential buyers. Some buyers are put off because it means they have little choice on what they do with their backyard and there are all types of dangers if the buyers have young children. I actually remember, when I was a child, one of the reasons my parents sold their house a short time after buying it was because it backed out onto a creek. The other issue with pools is that, although they’re great in the warmer months and offer relief from the scorching heat of Australian Summers, they can be extremely expensive to maintain. I have heard of friends who have actually boarded up their pools because they didn’t want the cost. A similar thing happened with a primary school that I went to.

You get the idea, now that you know one of the things you definitely shouldn’t do if you want to build equity, let’s take a look at what you should do to increase value.

The easiest way to build equity in your home is to increase your repayments. It’s really common in Australia to be paid monthly, but that doesn’t mean you should only pay your mortgage monthly. If you can, schedule your payments to weekly or fortnightly. By doing this you will reduce the time lapse between payments, and the result of that is that you will reduce interest, and therefore pay off your mortgage faster. That will save you money in the long run, and put you in a really good position when you want to sell your home.

If you don’t want to pay fortnightly or weekly, then increase your payments when you can. It’s unlikely that you’ll be penalised for paying faster.

You an also reduce your mortgage term subject to bank or other lender approval. A 15 year term will help you pay off your mortgage much faster than if you retained a 30 year loan. You will also save money on interest.

Some people like to use the equity in their home for renovations or other purchases. The problem with this is that by using your offset or redraw account, you are actually reducing the equity in your home (this will be covered in detail in a future blog).

If you’re really keen then pay a bigger deposit, that won’t help you immediately, however, it will reduce the amount of your periodic payments, freeing up money for renovations (again, another topic to be explored later on).

These are just some of the ways to increase equity in your home.

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