Equity in your home: what can you do with it?

Many homeowners have seen their home rise sharply in value in recent years. The difference between the market value and the mortgage debt is called equity (overwaarde). But what can you actually do with that equity, and what should you watch out for?

What exactly is equity?

Equity is the amount left over if you sell the home and repay the mortgage. As long as you keep living in the home, it's a value on paper. Only when you sell, or increase your mortgage, can you actually use the money.

How do you know how much equity you have?

To calculate your equity you need the current market value. A free valuation gives a good first indication. For a mortgage application, an official valuation is usually needed. Subtract your outstanding mortgage and any selling costs from that.

Equity when moving

The most common way to use equity is by moving. The equity can serve as own funds for the new home. That lowers your new mortgage or makes a more expensive home possible. Do pay attention to the rules around the so-called bijleenregeling (reinvestment rule): as a result you may need to put in the equity to retain the right to mortgage interest deduction. An adviser can explain how this works for you.

Equity for renovating or making sustainable

You can also increase your mortgage to renovate or make your home more sustainable. An extension, new kitchen or better insulation makes your home more comfortable and sometimes more valuable. Our specialists in renovation help with plans and budgeting. Also read sustainability and home value.

Equity for other purposes

Some people use equity to help children or for a large expense. That's sometimes possible, but the tax consequences may differ from investing in your own home. So get proper advice on this.

Buy first or sell first?

Anyone wanting to use equity for a new home must determine the right order. In our article buy first or sell first we outline the pros and cons. A bridging loan can help use the equity before your current home is sold.

Mind the risk

Home values can also fall. If you count on a certain amount of equity, but your home sells for less, you'll have less own funds. So be realistic in your expectations and have different scenarios calculated.

Advice on your equity

Want to know how much equity you have and how to use it sensibly? Our selling agents and advisers at mortgage advice will think along with you. Get in touch for a no-obligation conversation.

Frequently asked: can I withdraw equity without moving?

Yes, that's possible in some cases by increasing your mortgage. The lender then looks again at your income and the current value of the home. A new valuation is usually needed for that. Note that the interest on the extra portion may differ from your current rate, and the tax treatment depends on the purpose of the money. An adviser will lay out the options and consequences for you, so you can make a sensible choice.

Equity and repayment

Another option is to use the equity to partly repay your mortgage. That lowers your monthly costs and your debt. Especially with high interest rates that can be worthwhile. Keep in mind that after repayment you can't simply borrow again. Discuss with an adviser whether repaying fits your future plans.

Equity at retirement

For people approaching retirement, equity can play a role in financial planning. Some choose to downsize and use the difference as a buffer. Others stay put and use part of the equity for home adaptations. Which choice suits you best depends on your situation and wishes.