What is one of the quickest and most effective ways to add value to your home? With housing prices increasing, a lot of Australian homeowners have found a way to increase the value of their property by renovating.
Renovations on the rise
Renovating can make a property more valuable and can be a more cost effective way to own a better house without having to move. According to the Westpac Renovation Report, the number of homeowners renovating has hit a four year high, with renovations increasing by more than 147% since August 2010.
Renovating your bathroom
The most common areas that people renovate are often the kitchen and the bathroom, as they tend to offer the greatest return on investment. A bathroom makeover might include a structural change, maintenance and painting, and the cost could vary depending on the work, material and labour involved. According to a HIA survey, the average cost of a complete bathroom renovation in 2015 ranges from a price of $4500 for a budget bathroom upgrade to $24,000 for a premium bathroom overhaul.
Funding your renovations
A complete bathroom renovation is a big commitment for any homeowner. And if you don’t have the cash to perform the renovations, how are you going to finance it? No matter how big or small your project, you may need to borrow money to pay for it.
Use your own home’s equity
If you have a mortgage on your home, then your home has earned some equity. Equity is the difference between the amount you owe on your home and what your home is actually worth. Equity can build up over time either because your home has risen in value or you’ve paid down your loan balance. Investing home equity money into a high-value home improvement helps to increase your home’s equity and you can use the added equity to borrow more money against your home.
Missing out on equity
It is found that a very low number of homeowners use the equity in their current home while renovating. Research from the Westpac Upgraders Report has revealed that only 11% of Australian borrowers are looking to use equity in their property to upgrade. Does this mean that some Australians could be missing out on an opportunity to build their long term wealth?
Calculating the amount of accessible equity
The amount of equity you can access to pay for your renovation depends on how much your lender will let you borrow. Getting a property valuation is thus an essential part and is used to determine the value of a property that will act as security against your home loan when you want to access the equity in your home. A common credit limit on the home loans is 80% of your Loan-to-Value Ratio (LVR). To decide on the exact percentage, the lender will evaluate your credit score, past payment history, and your total amount of debt; the lower your debt and the higher your credit score, the higher the percentage they will be willing to lend you. Every lender has different standards and policies for evaluating loans.
It is important to seek information from an experienced financial professional before you start imagining your modern bathroom space. So whether you’re thinking of using your equity or even using your own savings, our brokers can help you choose the right home loan product or answer your questions. Our broker will be able to talk you through the options to help you choose the best one for you.
Turning an outdated bathroom into a modern one is an exciting task. But before jumping to choosing the latest tile or bathtub design, you should finish your home work so that your project turns out just the way you dream it.