There are many reasons why you may want to renovate your house, such as fixing up an older property, making space for a new family member or upgrading the property to increase its value. Irrespective of why you wish to renovate, one thing is common – renovation projects are rarely cheap.


Of course, the money you spend isn’t wasted if you plan things well. A well-planned and well-executed renovation can add up to 10% to the value of your home if you hold onto the property for five or more years. Major value-adding projects like kitchen and bathroom renovations add the maximum value and remain the most popular, followed by new floors and paint jobs.


But the initial investment required to undertake a renovation project can set you back  a few thousand dollars. For instance, a kitchen makeover might include a structural change, maintenance and painting. It can cost up to $10,000, depending on the work, material and labour involved, according to a renovation guide published by Australia’s largest online tradie marketplace, hipages. If you plan to renovate your bathroom, you can expect to shell out a minimum of $10,000, and your costs can be as much as $35,000 depending on the changes you intend to make.

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

This is where your home equity could turn out to be an immense help. If you have owned your property for some time, you are likely to have generated some equity in your home, and you can use this equity by borrowing against it to fund your renovation project.


Equity Definition

Equity is the difference between the market value of your property and the amount you still owe on your home loan. Naturally, your equity is likely to grow if you have been paying off your home loan consistently for a few years, increasing your share in the property and reducing the total amount outstanding on the mortgage. Another way your equity can increase is when the value of your property rises, which could be a result of the market forces in your area or some renovations you made that added to the property’s value.


How much equity do I have?

You can calculate your equity by subtracting your outstanding mortgage amount from the value of your home. You can get a property valuation done to find out the exact value of your property. However, you can only use a percentage of this equity to borrow money for personal needs, like a renovation or even a holiday to Hawaii. Generally, you can 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 multiply this figure by 80%. You can access your equity by withdrawing extra repayments under a redraw facility or topping up your loan.

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. If your home loan doesn’t allow for a top-up facility, it may be possible for you to refinance your home loan or take out an equity loan, which will be a second loan on the property. You could speak with a mortgage broker to understand your options and seek guidance in picking the right financing solution for your requirement.


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