Lowest Rates | star ratings | Search By Lender | Other Loans | Info | Articles | 

Equity Rich, Cash Poor?

The Australian dream of working towards home ownership is all very noble until the mortgage is paid off but there's no extra lump sum savings factored in for other projects. That's the traditional way many join the Equity Rich, Cash Poor Club. There is, however, a pot of gold at the end of the rainbow. It's called your home. If you are an income earner, your home is something you can borrow against by perhaps taking out a standard mortgage or line of credit to free up cash you wish to use for other reasons. Perhaps your financial situation has changed drastically, or your daily expenditure has soared, or you may want to invest in additional areas.

There's no doubt investment is the buzz word of the decade. Property investing is certainly much more prevalent than it has ever been before. With equity locked up in your home, real estate opportunities can pass you by unless you are prepared. Other reasons for using the equity in your home are to improve cashflow and to cope with increased daily expenditure that may be partially due to a higher inflation rate.

For income earners, the answer to unlocking equity built up in a property is as simple as re-mortgaging. All lenders offer this facility but, according to RateCity, not all loans are suitable so do your homework before deciding. Find the home loan that's best for you at RateCity.

A revolving line of credit (RLOC) facility is also something to consider. It is a special kind of home loan that may be suitable for, say, a short term cashflow problem. In some ways, RLOC operates more like a large overdraft. You are given a credit limit which you can draw down at any time you like. Unlike a standard mortgage, however, a revolving line of credit doesn't have a minimum repayment (with a credit card, for instance, this is typically 2-3% of the balance each month). The only requirement with a revolving line of credit is to keep the level of debt below the loan's 'Maximum Loan to Value' Ratio (LVR) which is typically 80-95% of the value of the property. This gives the borrower far more flexibility than with a traditional home loan that has set repayments. With this flexibility comes the ability to pay off the loan faster than a traditional loan. Alternatively, it gives you access to additional equity in your home. Most lenders do not insist you pay as much as you can, so you can have RLOC with no debt and available anytime you need it. There may be an ongoing fee to maintain this facility.

Access to equity is a good thing - except when the loan looks like it may never be repaid. And with a line of credit, this is a distinct possibility! Find loans that offer an RLOC facility at RateCity.

Retirees also can be equity rich and cash poor, and a reverse mortgage is one way to access the equity tied up in the family home. It means retirees don't have to sell their property and can unlock the equity in it by receiving a lump sum or regular installment payments to support their lifestyle.

It sounds good. So what are the catches? Yes, a reverse mortgage does provide convenience in obtaining extra cash but it comes with a few potential hassles that everyone needs to consider thoroughly.

The first is long term financial impact, especially on the inheritance. Perhaps the prospective borrower should discuss these plans with the family beforehand. This is a complicated issue and is one of the main reasons why financial advice should be sought from an expert before rushing in and signing on the dotted line.

Most reverse mortgage products require you to maintain the property to a specified standard and may not allow you to make certain modifications to your property. If you are considering a reverse mortgage, make sure you plan ahead and know the product with its risks as well as its benefits because it is not for everyone. Find out all the information you need on reverse mortgages at RateCity.

To search out the best value home loan, you need to consider a number of factors including fixed and variable interest rates, redraw facilities, offset accounts, ongoing fees, early repayment penalties and many other features. RateCity does your homework for you, by providing home loan star ratings developed by CANSTAR CANNEX, Australia's leading financial research and ratings firm. CANSTAR CANNEX experts have analysed and evaluated hundreds of features to give the full five star ratings to only the very top 5% of Australia's 2,000 home loans. You can find the very best home loans by searching through RateCity's large warehouse of products. How do I compare home loans? Home loan comparison on RateCity is easy. Over 2,000 home loans can be compared using our easy search tools.

SEARCH BY:

• Lowest Rates
• Preferred Institution
• CANSTAR CANNEX star ratings