Unlocking Wealth: How to Use Your Home Equity Wisely
Written by Regina Hocking, Financial Adviser & Director of Rebel Wealth Management Pty Ltd.
General Advice Warning: The following is general in nature and does not consider your personal financial situation, needs, or objectives. Before making any financial decisions, seek professional advice tailored to your circumstances.
Home Equity Borrowing: What You Need to Know
Your home is one of your biggest assets and with the current housing market generally returning high valuations on properties we thought it timely that we discuss utilising home equity loans for personal wealth creation strategies.
Many people focus on paying off debt before investing, but this mindset can cost them years if not decades of lost wealth building potential. By waiting, they miss out on the incredible power of compounding, where money grows exponentially over time. The sooner you start investing, the more you can harness time, momentum, and market growth to accelerate your financial future. Don't just eliminate debt strategically leverage your assets to build lasting wealth!
What is Home Equity Borrowing?
Home equity is the difference between your home’s market value and what you owe on your mortgage. Lenders can allow homeowners to borrow against this equity, often as a home equity loan.
Borrowing against home equity can be a way to accelerate wealth creation by investing sooner rather than waiting to save. While saving is always a good habit, it can take years to accumulate the funds needed for major investments like property, business expansion, or diversified investment portfolios. Leveraging home equity allows you to put money to work faster, potentially taking advantage of market opportunities and compounding returns.
At Rebel Wealth Management, we can help formulate a personalised investment strategy that aligns with your goals and risk tolerance.
Pros of Using Home Equity
✅ Lower Interest Rates – Home equity loans often have lower interest rates than personal loans, margin loans or credit cards.
✅ Access to Larger Sums – You may be able to borrow more than with unsecured loans. ✅Potential Tax Benefits – In some cases, interest on home equity loans may be tax-deductible (always check with your accountant!).
✅ Opportunity to Expedite Your Wealth – Borrowing to invest can help grow your assets faster than saving alone, provided the investments perform in alignment with your timeframe and risk profile.
Cons of Using Home Equity
❌ Your Home is Collateral – If you can’t make repayments, you could risk losing your home.
❌ Extra Debt Load – Borrowing more means additional repayments, impacting your cash flow. ❌ Interest Rate Fluctuations – Interest rates can increase which will affect your cash flow and repayments
❌ Investment Risk – If using equity for investments, there's always a chance they won’t perform as expected, which could put financial strain on you.
Is It Right for You?
Home equity borrowing can be useful, but it’s not a one-size-fits-all solution. Consider your long-term financial goals, cash flow, and risk tolerance. While borrowing can accelerate wealth creation, it’s important to balance opportunity with risk.
Strategy Example: Investing vs. Paying Down Debt
Meet Fred & Wilma
Age: 40
Mortgage: $400,000 at 6% interest
Minimum Repayments: $2,398 per month (30-year loan)
Surplus Cash Flow: $2,000 per month
Scenario 1: Paying Down the Mortgage Only
If Fred & Wilma put their entire $2,000 surplus towards their mortgage, they’ll pay it off in around 15 years instead of 30 and save $261,000 in interest. That sounds like a great result, but is it the best option?
Scenario 2: Investing While Paying the Mortgage
Instead of putting the full $2,000 into their mortgage, they split it:
$1,000 extra into the mortgage
$1,000 into an investment portfolio earning an average 8% return
In 15 years, their mortgage would still be paid off, but they could also have a $350,000 investment portfolio growing through compounding returns!
The Power of Compounding
If they leave that $350,000 invested for another 10 years, without adding a cent, at 8% annual growth, it could grow to $756,000 by the time they hit 65, completely separate from their home equity!
Key Takeaway
By balancing debt reduction with investing, Fred & Wilma don’t just pay off their home they build additional wealth. Waiting until debt is gone before investing throws away years of compounding growth and market opportunities.
For home equity and loan capacity strategies, we also recommend speaking to your expert home loan broker to ensure you’re getting the best lending advice for your situation and your Accountant or tax professional to ensure you understand how this would best work for you.
At Rebel Wealth Management, we can work with your tax and lending professionals to formulate a comprehensive wealth building plan tailored to your needs.
Want to chat about your situation? Book a complimentary discovery phone call with our adviser here: Book me in!
Regina Hocking
Director | Financial Adviser FChFP, GradDipFinPlan
Rebel Wealth Management Pty Ltd
Authorised Representative 001234469