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Hello and welcome to She's on the Money, where we unpack money stuff so you don't have to pretend to already get it. Have you ever heard the phrase you could use your equity said like it's some kind of magical wealth building strategy, and wondered whether it's actually smart or just sounds impressive Because that sentence seems to get thrown around a lot, and today we are unpacking what
it really means before anyone does anything too expensive. I'm Victoria Devine and not only was i a financial advisor, I actually currently own a mortgage an asset finance broken company and with me is one of the best brokers in my business. Ms. Jacqueline Walsh. I mean, you're all good, but like, how else do you explain that?
Thank you, welcome back.
To the show we've had you on before. Are you excited to dive in and talk about equity always? I feel like everyone throws it around, but not many people actually know what it is. So if you're listening to this and you're like, yeah, of course, I do for every person who says, yeah, of course, I do this
like ten little like what equity? So we had you in for an episode at the start of the year to fill us in on all of the things that changed when it comes to mortgages over the last year, and I asked the community for their questions too, and one thing that just kept coming up, and we promised
a whole episode on was equity. And what really stood out was how many people thought that they had equity, but had no idea what to do with it, how to access it, whether they should So I knew that we had to probably do a bit of a deeper dive on a specific topic, not just a broker Q and A. So now that we've discovered in our last episode together that, in very simple terms, equity is the difference between what your property is worth today and what you still owe the bank, yep, I think it is
time to dive a little bit deeper. So Jacqueline first, cab off the rank. We're not doing any fluffy stuff here. I just want to do equity content. Okay, say I have a property it's worth nine hundred thousand dollars. Yes, I've got eight hundred thousand dollars left on the table to pay off on this loan. Can I go to the bank and say, can I have one hundred grand for whatever I want to do?
No?
Ah, So it's not just free money? No, okay, what is it?
So you're right in saying that the way that you look at equity is what your property value is worth today less what your current loan is. So if you said that your property value was nine hundred thousand and your loan is five hundred thousand. People might look at it and say, well, that's four hundred thousand inequity that I've got that.
Well, it is true, like because if you sold your property.
Correct, But doesn't mean that you can access four hundred thousand dollars.
Without selling your property. Correct? Okay, what could I access?
In most cases, you can access up to eighty percent. Yeah, some other cases you can go over that, but there would be potential alumi, so let us more insurance charged to that. But let's just say you were to access up to eighty percent, you're looking at around taking out an additional two hundred and twenty thousand dollars in equity once you've got your five hundred thousand dollars loan plus the two hundred and twenty thousand dollars equity release. Cool.
So what are the most common things that you see people wanting to use their equity for? Because you can basically pull it out for whatever.
True, Yeah and false at the same correct. Some banks are going to really care about what it is that you say that you're using the equity for. So in some cases you can't use it for business purposes. Other cases where you might say that you're doing a renovation, but you're trying to take out, say four hundred thousand dollars, that's probably not going to be a cosmetic renovation, more
of a structural. They'll allow you to take it out, but they're going to want to see you structure it differently, so it could be a building loan rather than just eight cash outs now.
Yeah, Yeah, and that's just their managing their risk and making sure that everything is hunky doory. Not necessarily, you know, because you can't do that thing. They're just like, that's a lot of risk for us to take on.
Yeah, So if you're going to take out four hundred thousand dollars for a renovation, they want to see that. Obviously, the changes that you're saying are going to be made to the property are getting made because they're opening themselves up for more risk. So they're going to want to, like you said, manage those funds to the builder. Yeah.
And I would say the most common equity cash out that we do as a business is people taking their equity out to buy another house. Yes, would you agree with that? So you're using that equity as the deposit on the next property, so you don't actually have to save up again. Anything else. Any other reasons why you might get equity out.
Yeah, purchasing a new car, purchasing a boat, investment, things like that.
So if I go to my bank, can say can I use my equity to buy a boat? Are they just going to say yes?
If your ALVIR loan to value ratio allows it, you can service that debt, then yes.
I could have a boat.
You can have a boat.
I love the idea. I don't know how to drive a boat. As someone who deals with mortgages every day, I mean both of us. But you specifically, what are your personal feelings about people using their equity if.
It's for the right reasons. And I say that if you're looking to, say, leverage off equity to purchase a new property and another investment property and build your portfolio, that to me is for the right reasons. Obviously you need to speak to the bank or a broker and make sure that what you're doing and trying to achieve is right for you and it's going to be beneficial. YEA. But yes, if you're asking me, I think that I'm well for it.
Yeah, some am, I just not for the wrong things, Like I wouldn't. I'm very apprehensive when people say they want to take out their equity for a holiday. I'm like, oh, you're not going to have anything to show at the end of that. Like, you could technically take out equity for a holiday, but from my perspective, I think we should only be using it to build wealth. So whether that is purchasing assets that increase in value, or you're using your equity to invest in shares, or you're using
your equity to get into another investment property. That's probably where my personal values lie, and I think yours are kind of similar.
Yeah, there's definitely been times where I've told people that I don't think that they should be Yeah, not decline them, but just sort of But.
As a good broker, you kind of are that sound board of like, hey, that sounds really great in theory. Personally, I don't know if this is the best idea given I've looked at your holistic financial situation. But like, that's just putting the client first, and then if they decide to go through with it, great, I can probably get you in the best deal, but we're just flagging that this might not be the best financial decision. But it's also yours to make.
Yeah, you've got to weigh it all up. You're going to weigh up rate LVR. Is there any lender's Morgan insurance getting added? Is your rate increasing because of this? It really needs to be beneficial to you at the end of the day to follow through with it.
Yeah. And in your experience, what do you think is the number one thing that people misunderstand about equity?
I would just say how much they haven't And I guess the misconception is that you know you might have four hundred thousand dollars in equity and therefore access Ye. I can access it. Yes, and no, you can access it if you were to sell your property. That's going to be cold, hard cash. Yes, Because now.
You've got a nine hundred thousand dollar property and you think you have four hundred thousand dollars equity, and you sell it for nine hundred thousand, you're gonna have four
hundred grand in your hand less the agent fees. Yes, but like being really clean about it, But that's not how it works when you're asking the bank to have that money back, because they still require security over your property and security that you're going to pay back the loan, so they need the deposits still kind of hiding in there.
Yeah. So people would assume that if I've got it there, I can use it. But there's sort of two I guess areas that need to be ticked off, which is A do we have the equity there? Yes? And B can we service what we're trying to take out. If you can't service that loan for the additional equity amount that you're trying to release, you can't. You can't access it.
Yeah. Yeah, And so there's a lot of things or hoops that you need to jump through that are not really hoops. It's like, technically you're borrowing the money, you need to be able to pay for it.
Surely you actually need to make the repayments back on that.
Damn it. I thought it was free money. So when you're looking up properties values on like domain or real estate dot com, dot au, you get a low, mid and a high value range, and some times I feel like that varies a lot, Like I've been looking in our area a lot recently and it's like low nine hundred, mid one point three, high six billion dollars and you're like, wait,
what what's going on? How can someone get a rough sense or a rough idea of whether they may or may not have equity before talking to a broker, because like I could google my address and then it says low, medium, high, yeah the range no, especially if you haven't bought the property recently.
Yeah. I mean, if you speak to a bank or broker,
they do have the tools. I guess to there's tools that we can jump online and have a better indication, like more of a you know, within a one hundred thousand dollars range, I guess, or we can actually do a valuation, which is either an online valuation depending on how much data we have to say that there's been recent sales in the area, or if we need to get someone out there and actually value the property in person because there's been works completed recently, we need a
true and correct value, then we can do that too.
That's what we did, so we knew that we didn't want It's called it desktop evaluation. And when I was going back and refinancing our mortgages and thinking about, Okay, what do we want to do in the future. I want to know my house value. I specifically requested an in person valuation because if you google the house that we had, so everybody knows we've just sold it or sold it last year. I knew that the information online
was not reflective of the property that we'd created. So I was like, we've done this really cool renovation, Like we've actually tipped a couple of hundred grand into this, and like, I think it looks slick. I need someone to come and look at all of this so that
we can get an accurate reflection. Yeah, and in some cases it might cost you money, but in most cases, if you're thinking about going through that process of getting equity, yes, Jack, if you order that, that's free, correct, So like through the you're broker, they can organize it most of the time free. It will depend on your circumstances and like sometimes location and whatnot. But I'd say ninety nine percent of our clients get that valuation done for free. Yes,
What things actually we influence a lender valuation? So obviously, like if you've renovated your house significantly like I did, and by the way, we got a better valuation that I was stoked.
I was like, that was worth it, Yeah, exactly.
But what other things actually influence that things.
Will that will influence is obviously how many comparatible sales that the bank has got in the area versus, you know, a more rural property, is there less on the market when was last one sold. That type of thing is going to have a big influence on if they can just do a straightforward, like you said, online valuation or a desktop valuation versus if they actually need to go out in person. So that can have a pull on what the bank sort of, like I say, spits back
as a first valuation of the property. But we can always sort of push back on that if we don't think that that's accurate enough, And like you said, if we need to get someone out there, we will.
Yeah, and we've done it before, and like I don't want to set this expectation to hybrid for clarity's sake. We've gotten a bank valuation back from a property that we weren't happy with, and yeah, we could get them to go back out and revalue it. But we've also gone to other banks before to be like, don't really like your valuation, don't believe it. Our neighbors literally sold for two hundred and fifty thousand dollars more, and we have the same townhouse wide that feels like you didn't
take that into consideration. We're just going to go get a different bank valuation.
We do see that quite often. So just because you get fun valuation back with one bank, that's not the end of it. I guess. We've definitely had where we've gone to another bank or two, two to three other banks, I guess, and completed valuations and we have seen valuations come in even one hundred and fifty thousand dollars more than the other one.
So it get a good broker who's actually going to put the effort in as well, because some brokers will be like, well, sorry, Jacqueline, that's just what your vowl came back as because they're not willing to not shop it around but get a second opinion, And like, you want a broker like and this is obviously I'm so biased, because I obviously love Zella and I love the team, and I think that we do a really good job. But you want a broker that is on your team.
Like if you've said to your broker, look, I really want to do this right now, and it's two hundred and fifty grand, and then you know the vowels come back and told you that you probably can borrow one point eighty. Like a lot of brokers will be like, well, that's just what you can borrow, whereas we'll be like, nah,
I reckon. We could get another valuation that would tip it over and like work out what goes on here and here, Like it becomes like a game twice like and I don't I mean that in the most professional sense, but sorry, there's a like there's it's like a game. You've just told me that it's worth this, and like, you know, if I genuinely believe it's more or I've done.
We're not silly. We work with property every day. Like again, if you saw your neighbor sell for more, or like three townhouses that you think have similar specs have gone fifty grand over that, I want a second opinion. Yeah, it's like a doctor.
Make it work, but it's going to get us the outcome that we want.
And I want my clients to be like, yeah, Jack was the best, or working at Zella was the best. Yeah, because we tried really hard for that reputation. Not gonna lie. So Jack, let's go back to that nine hundred thousand dollar example. Let's say I have a house and I reckon it's worth about nine hundred grand and on my loan there's five hundred thousand dollars still sitting there. If I came to you, ad Zella, what other things that you were going to look at to see if I
can actually borrow the equity? Like, what are you going to go through? How's that conversation going to go?
Yes, So we're going to obviously look at what the property value roughly is, and like you said, we can We're not stuck with one lender. We can look at multiple lenders and see what they come back with. But we're going to see as a rough amount how much equity you do have.
If you're one of our bdms and you're listening to this episode because you're like, wow, Zella is on an episode, just turn it off and pretend that you never heard that we would shop it around. We would not do that too, you guys. We are layer our one and only, one and only. We would never play you off against each other. That would just be kind of low key rude and in the best interest of the client.
Yeah, but we're going to look at obviously equity as a number one. We're going to see which different banks are going to allow us to go up to which type of LVR, So thanks are going to have a US cut it off at seventy percent of YA, some will be at eighty percent, and some will allow us to go above eighty percent. But we're now in ALUMI space, so lend us Morgan insurance. How much is that going to look like if we do go above eighty percent?
And also the third one obviously borrowing capacity, So yes, we need to make sure that what we're looking to take out that we can actually service that and what that looks like.
Yeah, and the bank's also going to be like, hey, Jack, why do you want to access your money and assess that as well? And I think that sometimes it sounds really really cool, and I just want to dispel this for a hot second, because, like I mean, we're in the middle of a cost of living crisis, so everyone's trying to work out how to get more money.
What that looks like?
You know, we just need a little bit of like wiggle room, and you might go, we could probably use the equity, but we might assess your incomes right now, and unfortunately you can't access that equity because you can't pay back the additional loan because you're already living like paycheck to paycheck in a way, and I find that
really disheartening for the client. Yeah, so like talk to us still because we want to make a plan and like every single like Zella Broker is going to make sure that you have a budget, you have a cash loo, and you do all of that stuff. But I think also to set clean expectations, you can't just pull it
out and be like, oh, this is wiggle room. Yeah, especially if you're already strapped for cash because your loan is going to increase and they might go well on your incomes, you can't pay back reasonably and therefore no and that can be really disappointing if you've kind of unlocked that idea in your head. I been like, this is the thing that's going to give us some breathing room, same as.
It's not changing employer. Yeah, so obviously you might have equity available you want to pull it out. If you've changed employer where you've gone to say maybe casual, you might need to stay at that job for six months before you can access it. Doesn't just mean that because you are currently employed that you have the ability to pull out the equity.
Yeah. Now you've worked for Zella for years and we're really lucky. We have thousands of clients, and I would say that you've seen thousands of applications go through. What things make you go, m this is going to be an issue when you see it pop up.
Going back to I guess employment type starting LBR, so where you're already currently at and where you're trying to get to, recently left your employer so recently quit or again looking for new employment.
I would say maternity leaf. I think a lot of people, and this is not a bad thing, but I think a lot of people are like, well, I'm on matt leave, I still have an income, i still have solid employment. That's not how banks see it. No, and we're not saying that that's fair. That's just the game that we're playing. If you're on maternity leave, very often we have to say, let's wait until you're back in your job and then we can work it out because the banks are very conservative.
It makes me very frustrated, but the banks are very conservative about it.
Yeah. It's not a cold, hard no, No, it's just obviously a little bit trickier.
Yeah, and it definitely limits options I would say, say, you and I are looking at my loan and we can access equity. That looks really good, But I've got forty thousand dollars worth of personal consumer debt. Can I just roll that into my homeland? I feel like that's a common question.
You certainly can, but you again, you need to speak to your bank or broker if that's going to be beneficial to you and how that's going to look. There is two types of ways to structure it. You can obviously add that consumer debt directly onto your existing home loan, make it one repayment that could be for the time frame of say thirty years your existing loan, keeping down repayments, and you might be happy with that.
Are you happy with that?
Yeah? You're also paying interest over thirty years on that portion as.
Well, so be more expensive. So you think you're lowering your interest rate, but you're increasing your time paying that back, which means it's probably going to be more expensive.
Yeah. Another option that you can look at is doing say a split for that forty thousand dollars over say a much smaller loan term, say seven years, and that interest rates obviously less than what you're already paying maybe at fifteen percent for a personal loan because now it's on a home loan rate, but therefore you're still paying it back within a.
Time, same period of time.
Yeah, just because you pick one way does not mean that you're stuck in that structure forever. Yeah, you might say adding the consumer debt to the home loan and making it one repayment and the smallest amount of repayments today is the best for me, just to keep my payments down and then when things change in a year's time you've got more cash flow, you might look at splitting off that portion and just trying to mashing it down, smashing it out and say five years and getting rid
of it. It doesn't mean that you're stuck. If you choose one way now, you can always chop and change it.
You just got to reach out and you don't have to work that out yourself. Your broker can give you a plan for that. By the way, Like it's not you have to come. We can just like facilitate that. No, we'll give you the plan of getting out of debt. Because one of the things that I would say a good broker does is flag things that are not going
to be in your best interest long term. So you might go, well, my homelan interest rate is sitting at five percent, I'd prefer that the my fifteen percent personal loan rate. Jacqueline's going to sit down and be like, yes, but over thirty years, this is what this looks like. But we can still do it. If you made additional contributions to your mortgage at that fifteen percent, right, we could probably get rid of it in like two years instead of the five that you still had left on
that personal term. And then also we could use that money to consistently contribute to it after it's gone and get down your mortgage exactly, pay less interest. And that's really sexy. So there's lots of strategy that we can give you, but you kind of need to start the conversation.
Jack going back to lenders, when they look at equity usage, they're kind of really reading into like risk signs and going, is this risky because like they're more likely to go, oh, she wants to borrow one hundred grand to put another bedroom on the back of the house. Yes, that's pretty sexy. That's going to add value to the property that we're already financing.
Security.
Yeah, Green flag. That sounds really good. Victoria Devine wants to buy a boat and call it boating boat face. That's probably a lot more risky. Is that going to hold its value over time? What's it going to cost her? Why is she going to do it? They're probably and a look into in the background, just like, Okay, well she'll have boat maintenance fees? What does that look like? There's lots of weird questions that you might not have thought of. Do you see that some lenders are more
conservative on letting you have equity than others? Maybe others are more flexible definitely, Like so I could get bodymic boat face, but it might not be the most conservative bank you can.
But you're right, not every lender is probably going to allow you to do that. And like I was saying before, there are different LVR restrictions with different lenders. So some might allow you to only go up to seventy percent because that's where they draw the line and say it's less risk adverse. The most common, sorry, would be eighty percent. And then again in some cases they'll allow you to go above eighty percent. I guess for the right reasons.
In that case, Bodymic boat Face eighty percent of ya is probably going to be really hard to get across the line.
That's really disappointing, all right. To deal with my disappointment, I think that we should take a really quick break, and when we get back, I want to get into things that you need to think about before you're actually using your equity. So guys, don't go anywhere. We are talking about absolutely everything equity today with Jack Lan Jack. Who does using equity tend to.
Work really well for bridging clients?
Bridging clients? Tell me more so.
I guess if you're talking to an elderly couple and they were looking to downsize their property, they're going to use the equity in their existing property to purchase a new property and then sell the other property. The same goes for I guess a young couple with a family. Yeah, they might just want to move straight from A to B and not move from one property to a rental back to the new purchase. So if you've got a lot of equity, bridging is an option.
Yeah. Is that the same as bridging finance though? Yes, so that's exactly what bridging finance is correct, use it?
Yeah?
No, but I think it's really important to clarify that too, because I think a lot of people think bridging finances these very very separate loan that you go and get, which you can be like, we can go and get additional finance to make it up if you don't have equity inner property that you are purchasing today with the promise that you will sell your property to extinguish that loan. But like that's kind of where it can be not so risk averse. So like there are bridging products, and
these bridging products are usually more expensive. But this is a way of doing it at your current interest rate.
Correct, But you would need to have quite a lot of equity to be able to do that, because most they.
Said old people, Well, I mean old people do have equity. They've had more time to pay off.
The generally speaking, yes, they've either sat on their property for some time and the property values have gone up, or they have made a lot of additional payments over that time.
So if your parents want to do this, you send them to us, because we really like those loans. They're easy, they're really fun. Your mum's probably really fun as.
Well, like symp them does Ella, we'll have a cup of tea.
We may create tea.
We do.
We drink a lot of tea in our office on the flip side. Who doesn't it.
Work for someone that's teetering on the edge of a high ALVR already? And like I said, because some people can go over that eighty percent. Some people have come to us before and thought, I would like to deconsolidate and look at adding the existing loan, pay that off and add it to my mortgage. But that's pushing them over an eighty percent LVR, which is adding lender's Morga insurance,
which is also pushing up their interest rates. So when taking it into account the fees, the charges, and all of that as a whole, it's not beneficial for them to be looking at doing something like that.
Yeah. One of the things that I often talk about, and not necessarily on the podcast, but just in general, is I hate and I can be a little bit more aggressive because you won't see me as your broker. You get actually is much nicer. But I hate that people sometimes use equity to manage their lifestyle creep because I feel like it just slips through your fingers, Like if you're like, oh, well, we'll just release some equity and we'll be fine later, go on this holiday, we'll
upgrade our cars. We'll do this, Like the money doesn't last, and then you need to find a way to keep up with the life style that you've just built again with releasing equity, Like, that's not a cycle you can keep up with. That's a cycle of you going into more and more debt or not getting ahead when it comes to wealth creation.
And your property value can dip over time as well, So that's something that you need to be mindful of too, just because you could go up to these lvrs and take out additional funds for whatever reason. If your property value did decrease over time, what does that look like? Are you going to end up selling and not making a dime off that?
And do you sell boating? Make boat face?
I know that's the last thing we want to do.
No, but like it can be And I think that that's where people go, well, I'll just sell it. And it's like, well, that's a decreasing asset, Like that's not going to be worth the same as what it was before. So even if later down the line you're like, oh well we'll sell the boat and put that back in the mortgage, you're not going to be at the position that you were before, correct, So I think that's really important to take into consideration. That's why I said, you're
not going to like me. It's a bit blunt. Don't use it for lifestyle. Do you ever tell clients that they shouldn't use equity or you as blunt as me? Do you go you shouldn't be doing this even if they technically can.
Yes, but that's because I'm providing them with the facts as to why they shouldn't. And yeah, I'll give you options, I'll let you have a look over it, and then i'll sort of give my recommendation as to why. But again, like you said before, it's completely up to the client if they want to proceed with that or not.
But yeah, and I think that we talk about this a lot in the office because we've got such a beautiful and diverse client range. Like we do do people who are downsizing, we do do first home buyers, we do do people who are accessing equity to pay down debt, like we do all of these things. But sometimes when there's a like, ah, like, let's chat this through. I'm about to have a conversation with a client where I'm going to tell them that I don't think their idea
is a good idea. And it's always like we'll tell them, like, I think our business is very pro just be honest, be kind, but be honest, because I would prefer the client to be in a better position and go, you know what, Jack, you're right, don't write the loan and they walk away and we make no money. That feels like a better ethical position to be in.
Yeah, then oh.
Yeah, well yeah, maybe you shouldn't, but like the loan will go through and it'll be easy just to get no pay.
Every time I've given feedback as to why that they shouldn't, I feel like the clients have always been really thankful and actually listen to us. I don't think it's a case of just like, oh, well, I'm going to do it anyway, I'm going to go to another lender, like.
Right, I haven't really Yeah, And it does make us feel a little bit bad when we have to have a hard conversation. No one wants to have a hard conversation. We're willing to do it, but no one wants to do it. So what questions should someone ask themselves before they're going to use their equity. So I've decided yep, I can. Maybe I've already spoken to you and you're like, yeah, you can actually access one hundred thousand dollars worth of equity.
What am I asking myself before going yeah, let's pull the trigger on that?
Yeah? I mean is it going to be beneficial? How much? Because both face no, okay, yeah, is it going to be beneficial? I guess for the future. How much equity do I have? What happens if the property value drops? What does that look like? What's my exit strategy? If we're purchasing a new investment are we looking at the risks for that as well? Like you said that, the
different lenders are going to look into different things. So if we did say that we were going to be purchasing using the deposit to purchase a new investment property, there are additional expenses that need to be captured. So therefore it can reduce your borrowing again.
Yeah, because we're looking at stamp duty and you're not going to get the concessions that you got when you're a first home buyer.
Yeah. Yeah, I mean it's also going to restrict your future borrowings as well, So you're taking on more debt. Therefore, it's going to limit what you can do in the future too. So if you had a plan of you know, purchasing the property in five years time, is taking out one hundred thousand dollars for bo boat face the best option right now?
Yes it is, And thank you for making me question it. I'm doubling down. But I do think that that's really important because like I laugh about boating boat face, but it's like, that's a lifestyle decision, and I think that that trivializes it in a way. You go, well, that would be silly, Victorian, and go, well, yes, that's why I'm saying it in a silly way, because I don't want you to be funding your lifestyle through equity. That
could if you've got access to one hundred grand, that's power. Yeah, like that is you could do some really cool stuff. You could build a share portfolio, you could put an extension on the house and you know, add value that way by an investment property. Like, there are so many cool things you can do with equity that I just get a little bit like, no, what are you doing when people cash it out for reasons that I go,
that's not going to help future you. I also think if you're going to like what else should you be looking at? If you in your head are like, well, we're going to do an extension, have you actually gone and gotten quotes, like if you and your head are like, oh, well, one hundred grand should be enough to cover that. In this economy, nothing is promised, So like, go get quotes from builders what would it cost to put this on?
Or if you're renovating the kitchen or the bathroom or whatever, go get at least three comparable quotes so that you know average what it's going to cost. Because I feel
like building at the moment is absolutely blowing out. Like most of our clients who are building, it's stressful because they keep coming back and being like, oh, we've gone over ten percent, or you know, we didn't realize that this wasn't factory in, or our builders come back and said this material is actually more expensive because we didn't get in on the cutoff and the pricing create it's actually chaos. And you're laughing because I know you've just
gone through this personally with a reno. I went through it with my reno and like never again.
Yeah, So every reear stress too, are.
There any other smart ways that you've seen people use their equity apart from like investing.
I'd say the biggest one would be purchasing an investment properly, like using the funds for a deposit to eliminate the need for lenders morg insurance on the other side, Yeah, I guess cash flow is tightened up, and therefore majority of people's funds is going towards the mortgage and reducing the current home loans. So a lot of people don't tend to have, you know, a large savings just sitting in their accounts right now. It's all tied up in equity.
We've talked about the risks of equity obviously, like you're not being able to afford it your cash flow, you know, being a little bit more snug whatever. Even property going down in value and you're going, excuse me, that's not what I expected. Have you ever seen something go really wrong with an equity release. I just want to scare the community there.
Well, yeah, obviously the property value dropping below what they've purchased. Therefore, you know, if you're at a ninety percent LVR and the property dropped, you know, by ten percent, and therefore you looked at selling, you actually need to make additional repayments to the bank to pay back that property.
Yeah, you don't actually extinguish all the debt by Yeah, you could.
End up with, like I say, a forty or fifty thousand dollars additional loan even when the property's gone and you've sold and you're still having to make repayments back on it. So you do need to be really careful about sort of how much you're taking out and what the use is for.
Yeah, And that's why even if you went to your bank originally and got your first home loan it and it was all hunky dory and it went really well fantastic. That's why if you're thinking about an equity release, please just talk to a broker one to get the right situation, but so that they can do the strategy, because the bank isn't going to look at your personal circumstances and be like, so are you planning kids soon? Like what's your life plan? Got any big events coming up? Any holiday? Like,
they don't give two flying ducks. What they care about is can you afford it? They're on the numbers and you're like, yeah, we'll release that out no aries, Like you'll probably have a drop down menu of why you want the equity to be released. Maybe I've had a plan, but there's a drop down menu of why you would want to release your equity, and they'll be like, yeah, sweet.
Notion like that.
Don't even care. People even get equity out and lie to the bank. I'm not saying this is a good idea, but they might be like, it's for renovation. Then all of a sudden, they've spent it on boating boat face Like that happens because once the equity is released, it just goes into your bank account like it's actual cash you've got access to. And so for me, that's a risk as well not having a solid plan for your
equity once it hit your account. Like one of the things that I would say is if you are accessing equity and you're not, you know, using it for a home deposit or something immediate, make sure it goes into your offset account immediately immediately.
Yeah, so it just sits the funding.
The day you get your funding, that money goes straight into your offset account and sits there, and it will sit there for the entire time that you're doing your renovations.
And drawing down on it, don't have it go into a separate savings account, like at least offset the interest on your mortgage for the time being, because like, if you're renovating, it might be like, who knows, I'm making this schedule up right, it might be like twenty percent upfront to get the builders, and then you get to fifty percent and you're not even paying the rest of
it off until twenty twenty seven. And that's fine, but sorry, that money should be working for you while it's in your hands, because you can't invest it in their short term like that's not an option. I feel like that's a good little situation to be in. But then also be really open with your broker about your life and
your circumstances and what's going on. Because one thing that we've sayd all a couple of things actually that come to mind is if you're planning on changing jobs soon and you go, no, it's fine, like I'm getting a promotion, like in theory, that sounds really good, but banks don't
like job change. So like even if you come to me or come to us and say, hey, I want equity, and we're halfway through the application and then you call us and you're just getting an update on your loan application process or whatever, and then you go, oh, Jack, by the way, oh my god, I got a new job, Like you would think that as a beautiful client. We're so excited for you. Yeah, that is alarm bells to us. That is terrified, is it not, Jack?
Yeah, your mind's already gone elsewhere. It's like, how can I fix this? Yeah?
Yeah, because some banks will then be like, yeah, you were preapproved, you were accessible for that, but now you've got this new job. You need to get through probation on your new job before we're willing to give you access to that cash, and they might cancel the thing completely and we have to update the bank on that. We can't be deceptive. And another one is people are like, should I be using my equity now now for like a reno before we have kids?
I was about to say this one, Yeah, so you need to do Yeah.
So what's the answer there. Should we be releasing our equity before we have kids and doing the reno? Now? Do we just wait until we have kids and then release the equity?
I mean, obviously you can do it either way. However, if you're going to take the equity at now and then you're going on maternity leave. You need to make sure you're already factored into account this extra borrowing and extra payments that are going to be coming out, because just because you're borrowing it now and then you're going on maternity leave, your payments don't stop, so you need to make sure you've taken that into account.
Your cash flow is so important. Yeah, isn't it funny? You're like process and structure and driven and the like cash flow, budget, money, cash flow, cash flow. I'm just a broken record at this point. Anyway, I feel like we have clocked what it means to use your equity, access your equity, what equity means. We have so many educational posts when it comes to like information about mortgages and information about equity, et cetera on our Zeala Journey Instagram.
So we'll make sure that all of that is linked below. And I'll also be really brazen and just put the links so that you can book with one of our Zello brokers should you want to do that in the show notes as well. Jack, thank you for being on the show again. I know this is one of the topics that gets talked about a lot in our community, and I know that they love it when you're on the show, so I married them together. You guys are
so very welcome. And if you're thinking about your own situation and you want to understand all of your options, obviously I've put all of Jack's links and my links and the Zella links in the show notes. And if this has helped demystify equity for you, please make sure you share it with someone who keeps saying that they might use their equity one day. And of course hit subscribes so that you don't miss an episode. And guys, we will see you, not Jack, but we will see
the rest of you on Friday for Friday Drinks. Bye Bye.
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