How to build equity in your home.

After a prolonged period of interest rate hikes, interest rate cuts are back on the menu. But what does this mean for your financial future? 

Many people with variable rate mortgages will be breathing a sigh of relief after enduring a series of rate rises. While splurging on a few extras now that the pinch isn’t so strong may seem tempting, being strategic with your extra cash could make a huge difference to your future finances.
 
Whether you’re paying off a mortgage, hoping to grow your equity or saving for something special, here are some ways to sure-up your finances during a cycle of interest rate cuts.

Make extra repayments on your mortgage

Apart from biting the bullet and keeping your repayments at pre-interest drop levels, making additional repayments and parking any extra funds in your offset account will help you pay off your home faster. While we all dream of using a big windfall to knock off a large chunk of our mortgage, small amounts can still have a real impact over time. Remember: paying off a mortgage is a marathon, not a sprint.  

‘Don't underestimate the power of ten dollars. If you pay a little bit each week over a long time, it's going to have a snowball effect and give you real savings over the life of the loan,’ says ME mobile banker Tim Hunter.

‘You'll be surprised by how much ten dollars a week can save you over the life of the loan. Small amounts consistently will provide real savings.’

Changing the frequency of your payments is one clever way to make extra repayments on your mortgage without even noticing. Instead of monthly payments, you could switch to fortnightly repayments. Paying half the monthly amount every fortnight results in an extra month's repayment by the end of the year – an easy win without much effort.

Looking at your home loan statements can be a bit disheartening when you see how much interest you’re paying, especially in the early days of home ownership. To see how many months or years you could shave off your loan, plug your extra repayment amount into our home loan calculator.

Work on building equity in a home.

The good news is interest rate cuts can help you to build equity. Having more equity in your home can make refinancing easier, and it means you can potentially access more funds in the future to renovate or buy another property.
 
If you have a mortgage with a variable rate and are looking for the best way to build equity in your home, keeping your previous repayment amount (rather than accepting the new, lowered repayment amount) means you’ll be able to grow the equity in your home faster.
 
Tim explains that building equity in a home is a long game, so keeping your repayments above the minimum (regardless of whether you have a variable or fixed rate mortgage) can make a big difference over the life of the loan.

‘As interest rates come down, your minimum payment will drop. If you're able to maintain your repayments at the level of what the interest rates were before, then you’ll pay the loan down faster, which means you’ll own the home sooner,’ Tim explains.

Using this method, you’ll build equity in your home while developing a redraw facility (or a buffer) so that when life happens (your car breaks down or your hot water system gives up) you don’t have to scramble for cash. With more equity in your home, refinancing your mortgage is easier. 

Grow your wealth with a high interest savings account.

Interest rates will rise and fall, but if you’re keen to fund a big purchase in the future, you’ll need somewhere to park your savings. Whether you’re saving for some home renovations, a new set of wheels or dream overseas trip, a high interest savings account will help you reach your goals faster than leaving your funds in an everyday account with a lower interest rate.
 
The good news is you don’t need to be a maths whiz to figure it all out. If you’re wondering how to calculate compound interest or how long it will take to reach your saving target, let our handy savings calculator do the hard work for you. Need help with your budget? This budget planner takes the guesswork out of managing your money.

From slinging an extra tenner on your mortgage each week to migrating your holiday fund to a high interest savings account, there are plenty of ways to make interest rate cuts work for you.

FAQ on building home equity.

What creates home equity? 

First of all, equity is the difference between how much you owe the bank for your home (in other words your home loan) and the amount your property is worth. Equity will naturally grow over time as your property grows in value, or you can contribute to the growth by doing home renovations or paying more off your home loan. 

How do I build equity in my home?

You can build equity in your home two ways: 1. by paying down your loan; 2. your equity will increase when your property increases in value. The value of your home will increase naturally over time, however, there are ways to boost its value by making renovations and improvements.

What is the fastest way to build equity in your home?

If you’re looking to fast-track your home equity growth, you could start contributing more to your loan to pay it down faster. 

How to access equity in your home in Australia?

You may wish to access your home equity for home renovations, purchasing an investment property or another large item. To access your equity, you’ll first need to find out the value of your home through a valuation. Chat to a ME Mobile Banking Manager to find out how to access your equity and for advice on what to spend it on.  

Talk to ME.

Want to know more? One of our ME mobile banking managers can help guide you through the process of unlocking your home's equity.

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