If you have been paying off a home loan for some years, chances are you have achieved a level of equity that can be useful in these tough economic times. Even if your home loan is not yet fully paid off, the equity you have built over time can be helpful in several ways: You can use it to consolidate your debts, pay tuition fees for your dependants, fund major home renovations or even buy a second property as an investment.

What is equity?

Equity is the difference between what your property is worth and what you still owe on it. In other words, if you were to sell the home and pay off your loan, equity would be the cash amount left over. Remember that property is one of the few assets with the potential to appreciate in value over time. As the value of your home increases, so does your equity – provided you keep up to date with your home loan repayments.

The formula for working out your home’s equity is straightforward. If, for example, your home is worth R2 million and you still owe R500,000 on your loan, you are in ‘a positive equity position’ of R1.5 million.

Why is building equity a good thing?

Equity grows over time and can be used in various ways that benefit you. You can borrow against equity for almost any emergency. If you have a Nedbank home loan, for example, you can borrow against equity using NedRevolve, Readvance or a further loan.

You could use a loan against equity to consolidate your debts, so that you only have a single instalment to pay over a longer period. Or 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.

Of course, building equity also pays off when you sell your home. The bigger the difference between the sale price and the amount you still owe on the home loan, the more profit you will make from the sale.

How to build up equity in your home loan

The faster you can build equity, the sooner you can turn your property into a valuable and meaningful asset. The first step is to save a sizeable deposit before you buy a house. A large deposit reduces the amount owed on the property, which instantly boosts the home’s equity.

You can also build equity faster by paying more than the minimum repayment required on your home loan every month. This reduces the capital amount owed on the loan faster, not only saving you interest, but also building your equity more quickly.

If you make renovations that enhance your property’s value, you can also increase your equity. Be careful not to overcapitalise renovations – you don’t want to spend more on the property than the amount by which you increase its value. Talk to an estate agent or property expert before embarking on any extensive home renovations that create costs you may fail to recoup.

Refinancing your home to access equity

Be aware that even though you have built up some equity in your home loan, you don’t automatically qualify for refinancing. The bank will still look at your application closely and assess your credit history and the affordability of additional finance.

If your application is approved, however, the funds will be paid out immediately so you can achieve your goals. If you’re accessing additional finance to buy a second property, the bond needs to be registered at the deeds office before funds are released.

Did you know that on average, Nedbank pays out around R1.5 million a month in cash back on home loans? In 2024, we paid out more than R18.5 million in cash back on home loans. For an affordable home loan tailored to your circumstances and value-added extras like up to R20,000 cash back and a 50% discount on your attorney bond registration fees, choose the bank that’s best for your money. Explore your options for accessing any equity you have built up in your home loan.