Home renovations are all the rage right now as owners look to add value to their properties or enhance their lifestyle without the inconvenience of moving and incurring all the costs that go with it.
New kitchens and bathrooms are popular choices, while others are digging deeper to either rebuild completely or add an extra floor, bedroom or home office.
One of the most popular ways to finance such renovations is to use the equity in your home loan.
Equity is the difference between the value of your property and the size of your mortgage. So long as you’ve got suitable lending arrangements, your bank or lender is likely to allow you to leverage this equity to improve the value and enjoyment of your home.
You’ll need to apply to refinance, and your lender will independently revalue your home as part of the approval process so it can take some time to coordinate.
But it can be a good way to use the existing equity in your home, benefit from the current record-low interest rates and avoid the expense of applying for a new, separate loan that may charge higher interest.
Before diving into an expensive renovation project, it’s always best to discuss the plan with your lender, either independently or through your mortgage broker.
It can also pay to run your ideas past your real estate agent to get an understanding of how the renovations you envision might improve the final sale price of your home, even if you’re not intending to sell immediately. Agents also often have some great ideas on features that are in demand.
You can then source some construction quotes so you can understand how much your vision costs. It’s a good idea to add an extra 20% on the total amount to pay for unforeseen problems that can occur during building.
If you want or need to push beyond the 80% Loan-to-Value ratio (LVR), you may have to pay Lender’s Mortgage Insurance to protect the bank from the possibility that you might default on your loan.
But get in contact with us early and we can go through the details and work out what is possible.
This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.