How To Generate Income From Your Homes Equity

Understanding the concept of equity at all, let alone how it can translate into income

for you can be a bit of a challenge, as the world of property investment can seem fraught with confusing terms and potentially difficult decisions. Most people take out a mortgage or home loan to finance the purchase of their home, and then pay it off continually over a number of years. Depending on what stage youre at in the paying off of your home loan, there will be a certain balance remaining that you still need to pay off. Your homes equity is the amount you get when you subtract the balance you still owe from the value of your home.

Reverse Mortgages

If you are of retirement age (in Australia this is usually 60 or older), there is a way you can unlock the equity in your home without having to move out or sell. According to ASIC (the Australian Securities and Investments Commission) A reverse mortgage is currently the most common equity release product in Australia. With a reverse mortgage, you use the equity in your home as security to borrow money. You can take the loan as a lump sum, in a regular income stream, as a line of credit, or as a combination of these options.A reverse mortgage is generally only available if you are aged 60 or over. The amount you can borrow is also linked to your age (that is, the older you are, the more you can borrow). You dont need to make repayments on the money you borrow while you live in your home. But you must repay the loan in full if you sell your home or die and, in most cases, if you move into aged care.

Invest in YOU

Got a business idea that you just know is going to be a money-spinner but youre too cash-poor to put it into practise? You can take out a low-interest loan against the equity in your home to invest into your business. If the business is a sound one, you can generate a separate income, all originating from your homes equity.

Downsize

If your situation in life has changedfor example your kids have grown up and flown the coopyou may consider downsizing to a smaller home. Selling your home and buying a smaller, less expensive home will free up your equity into cold hard cash, which you can then use as added income.

Invest in Property

Theres a reason they say safe as houses, and using your equity to invest in another property will demonstrate why. You can use the equity in your home to borrow against and buy another home, which you can then rent out to generate an income which will hopefully help pay off the loan more quickly.

As with all things in life, there are wise decisions and foolish decisions you can make when it comes to your homes equity. The best place to start is with some sound property investment advice and a long-term plan that reflects the lifestyle you want to achieve.

by: Sam Khalil

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