Most homeowners dream of renovating their property at some point in time. Whether it was an initial vision at the time of purchase, you've got a growing family or you've been inspired by a recent reality-TV show, there are many reasons why an extension or kitchen remodel might appeal. When you're ready to move on from just dreaming, one of the first big questions to tackle is: how are you going to finance the renovation?
There are many reasons why an extension or kitchen remodel might appeal
Using your equity
Equity is the difference between the current value of your home and the amount owing on your home loan. If your home has gone up in value, you may have more equity than just the amount you've paid back on the loan. The equity you've built up can be used to finance the renovations.
However, the amount of equity you have is not necessarily the exact amount you will be able to access, since you will still need to pay the cost of servicing the loan.
For instance, if you took out a $500,000 home loan and you have $250,000 remaining as a balance, but your home is now worth $600,000, you would now have $350,000 in equity.
The bank would then need to work out a loan to value ratio (LVR) at which they are willing to lend. For example, with an 80% LVR, you would be able to borrow $230,000, which represents 80% of $600,000 ($480,000), less the remaining $250,000 loan balance. Speak to one of our mortgage specialists on 13 62 27 to see exactly how much you can borrow.
Refinance your home loan
The best way to get funds for your renovation project might be to refinance your existing home loan. You might be able to access a better interest rate or a longer loan term than your current loan, to reduce your repayments and allow more room in your monthly budget for the renovations.