Can my home equity pay for a renovation or upgrade?
- Higher property values increase home equity
- How to calculate your equity
- Use your equity to refinance or secure a new loan
- You may be able to get a better loan rate at the same time
If you've owned your home for more than a few years, now is the ideal time to check in on your home equity. Whether you've been attacking your mortgage with gusto or making minimum repayments, chances are you will have seen an impressive equity boost.
This is thanks to rising house prices, which increased by 10% in Melbourne and a whopping 18% in regional Victoria in just one year (Core Logic, July 2021).
“It is a good time to unlock your equity because of lower interest rates," explains BankVic Lending Specialist Jayne Kukuruzovic. "Home owners can use equity to renovate or upgrade, and get a better loan rate at the same time. Depending on how much you spend, your repayments might be comparable."
Whether you're dreaming of a new kitchen, a second storey or a move to a bigger, better home, here is how you can use your equity to make it happen.
Step 1. Understand home equity
Home equity is the difference between what you owe the bank and what your property could sell for. As the market value of your home goes up, so does your equity. COVID-19 restrictions on travel and other leisure activities have also seen many workers use the savings on these to pay off their loans.
However you gained your home equity, you may be able to borrow against it to improve your home. Your options include refinancing to a larger loan amount or using your home as security for a separate loan.
Step 2. Estimate your home equity
For a current estimate of your home's value, research recent comparable sales in your neighbourhood or ask a real estate agent for a valuation. (Your lender may organise a formal valuation if you proceed.)
From your value estimate, subtract the debt remaining on your mortgage. If your property is worth $800,000, and you have $300,000 left to pay, your home equity is $500,000.
Step 3. Access your equity
Just because you have equity doesn't mean you can access it all. Banks in Australia are legally required to lend responsibly. Jayne says BankVic will help you make an affordable plan, considering both your income and likely retirement age. "We work with homeowners to help determine the best outcome for them – whether they keep their total loan amount to 80% of the property value, to avoid lenders mortgage insurance or take it up to 90% with lenders mortgage insurance." For renovations, BankVic will estimate the home's projected value after the renovation, enabling you to borrow more.
At BankVic our home loan specialists can help you to explore your options. Get in touch today.