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Your existing home is cramping your lifestyle. Perhaps your family has grown or you just want a different floor plan. Should you move to a brand new property, or renovate the house you currently live in?

Renovating your home usually means increasing its value, making the long-term return on the investment worth the trouble and initial expense.

 
equity and home loan for renovation
 

The Westpac Renovation Report has found that Australian home owners are opting to improve their current home rather than moving, and are spending an average of $47,984 renovating their property. One in ten Australian property owners have renovated their home in the last 24 months. Though spending on renovations dropped to decade lows in 2013, the Australian Master Builders Association have predicted that in the year 2015-16, the value of work done on renovations will exceed $9 billion, nationally.

A well-planned and executed renovation can add up to 10% to the value of your home, if you hold onto the property for five or more years. Predictable value-adding projects like kitchen and bathroom renovations are the most popular, followed by new floors and paint jobs. A kitchen makeover might include a structural change, maintenance and painting, and can cost from $20,000-$40,000, depending on the work, material and labour involved.

But when you don’t have the cash to perform the renovations you want, the first big question to tackle is: how are you going to finance the renovation?

If you don’t have the money to finance a home renovation, cashing in on your home equity is a great option.

Equity Definition

Equity is the difference between the market value of your property & the amount you still owe on your home loan. New research from the Westpac Upgraders Report has revealed that only 11% Australian borrowers are looking to use home equity loan to upgrade. If the value of your home has gone up, you may have more equity than just the amount you’ve paid back on the loan. If you’ve paid down your loan or your home has increased in value, you may be able to use your equity for renovations on your home.

How much equity do I have?

To find out how much equity you have on your home, you will need to get a property valuation. The bank would then need to work out a loan to value ratio (LVR) at which they are willing to lend. Without mortgage insurance, you will generally be able to borrow up to 80% of the value of your home. To calculate your maximum borrowing, you will have to subtract your current loan balance from your property value and then multiply this figure by 80%. You can access your equity by withdrawing extra repayments under a redraw facility or topping-up your loan. You can also take advantage of a reverse mortgage if you’re over 65 and own your own home, which allows you to withdraw regular payments on your home loan as a lump sum or periodically.

The downside, however, is that repayment terms often are short and the variable interest rate can lead to high payments if rates increase. There may also be restrictions on your home loan that can prevent you from making extra repayments or accessing the equity in your home.

There has never been a better time than now to remodel your home, so get inspired and take the plunge.

Refinance your home at deals starting from 3.54%

 

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HashChing is helping Australians by providing access to pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.

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