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Most people want to remodel the house they live in at one point or another. Maybe some fancy new fittings, an extension, an open kitchen or new paint on the walls. Many homeowners are also taking up home renovation to cash in on the rising property wave. Small changes can fetch big money, especially in uptown areas.

 
fund your home renovation
 

According to ABS, Australians spent to a tune of $6.6 billion on renovation in the year 2014. In fact, the spending on renovations has been increasing by over $800 million annually since 2013.

Whether you have decided to renovate because you always wanted your house to be in a particular way or you are fascinated by the kitchen in a TV show or there is a new addition in your family, the question is how you are going to fund the renovations?

As a growing trend, many home owners are using the equity in their homes for funding the home renovation.

What is equity?

Equity means the difference between the current value of your home and the amount you owe on your home loan. Considering that property prices have been rising in many states in Australia, it is possible that your equity is more than what you have repaid on your home loan.

How to calculate equity

You bought a home for $600,000 few years back and its current value, according to you, is $750,000. Assuming you owe $350,000 on your home loan, your current equity in the home would be $400,000.

However, this does not mean that the entire amount is available for you to borrow. Most banks would allow you to borrow up to 80% of the total equity. Also, the lender would send a valuer to ascertain the market value of your property, which may not exactly match up with your estimate.

#Tip – Before you approach your lender to ascertain how much you can borrow, work out your renovation costs and use our budget calculator to see how much you can actually afford to borrow!

Is it a good idea to use equity for home renovations?

Honestly, it completely depends on how you plan your finances. Loan against equity can offer you lower interest rates than an unsecured loan such as using your credit card.

Also, if you are making value additions, the equity of your home will increase as a result of well thought of renovations! Well, who says change is not for good?

Of course, it doesn’t harm to plan and build some savings for future renovations. You could always use our savings calculator to meet your financial goals.

 

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