In the current property market, South African investors are exploring ways to access the value from their existing investment properties. One of the primary ways this can be achieved is through home equity. In borrowing against home equity or utilising a home equity loan, you have room to refinance your current home loan, unlock the equity tax-free, and be able to reinvest to make a new property purchase.
In this blog post, we’ll explore what home loan equity means and how much equity you can borrow.
IGrow Home Loans’ expert bond origination team is ready to help you assess your equity potential in your current properties and the best way to do it. Our team will assist you if you are ready to reinvest using your equity.
What is the definition of ‘home equity ’?
To break down ‘home equity,’ it essentially means the difference between your property’s market value and the amount still owed on your home loan.
To illustrate this:
If your investment property is worth R1,5 million and you still owe R400,000, your equity will be R1.1 million. As you pay off your home loan and your property appreciates, your equity will grow.
When the timing is right, “…it may be wise to leverage your equity to start building wealth – if you take out a loan against equity to buy a second property, you can rent it out for extra income. This can be a handy asset to own during your retirement years.”(Source)
How much equity can I access from my property?
A common question investors ask is: How much equity can I borrow against my home?
There are several ways in which to access equity within your home, as listed below:
- Further Advance/“Re-advance”: in the case that you have already paid off a part of your original bond, there’s a chance you may be able to re-borrow the funds (known as a re-advance) or be able to borrow further funds in connection with your increased equity (known as a further advance) tied to your current home loan.
- Access Bond Facility: Many home loans in South Africa offer an ‘access bond’. This means you can withdraw funds you have paid in addition to your minimum home loan repayments. This is a flexible option; however, it means you only have access to prepaid sums, not necessarily to the full equity growth from capital appreciation.
- Second Bond (or Mortgage): This involves taking out a separate, new home loan secured against the equity in your property. In some cases, this can be obtained from a different financial institution, such as a bank, which may offer different loan terms and interest rates.
- Home Loan /(or a “Line of Credit”): This type of loan offers you a lump sum, and a “line of credit” provides you with a revolving credit access point where you can draw funds as needed, with a certain cap on the amount. (Source)
Further details on a home loan/borrowing against home equity
A home equity loan is also known as a second home loan or a further advance on your current home loan. You can borrow a “lump sum” against the equity in your home.
Borrowing against equity can involve refinancing or cash-out refinancing. In this case, a bigger home loan replaces your current home loan with the balance in cash.
What does this mean?
In essence, refinancing via equity occurs when you request that your lender increase your home loan amount or restructure it to access additional cash, using your existing equity as leverage.
How can I access my equity?
- Obtain a property evaluation, so you know your home’s worth.
- Check the total amount you still owe on your loan, then calculate your current equity.
- Contact IGrow Home Loans bond originators to get an evaluation of what percentage of equity you will be allowed to borrow, and at what interest rate, and to apply to several loan institutions to get you the best possible offers (it suprises many to learn they may not get the best deal from their original home loan institution).
- Collate the necessary affordability profile documentation (your income record (like salary slips), your credit history, and your expenses (several months of bank statements will help).
- IGrow Home Loans’ bond originators will register the additional bond or help you refinance by submitting the necessary documents to the Deeds office.
- Access the funds: with our bond originators’ help, which you can use to reinvest and purchase further investment properties.
Conclusion
For property investors in South Africa, equity is a powerful tool for accessing capital locked in an existing property asset. Depending on whether you choose an equity loan or if you are borrowing against equity by refinancing or through further advances, you will be able to access funds. From here, you can reinvest and grow your wealth through further property purchases or pay off your debt.
Contact IGrow Home Loans today and let our expert bond originators ascertain how much equity you have in your current properties and the best way to access it.
