If you’re like many Australians, you might be considering a home renovation. In the last year, Australians spent $1 billion dollars on renovations to their homes. Even pre-Covid, the average monthly amount spent on home renovations in Queensland alone was $255 million.
Renovating is a fantastic option. It lets your home grow and change as your lifestyle and family does. Maybe you’ve had another child, and want to build another storey to accommodate extra bedrooms and a second living space. Or maybe – like many of us – you’re primarily working from home now, and you need an office to suit your new situation.
Whatever the reason, when you’re ready to renovate, you’ll need the funds to do that. Access the equity in your home. It’s a smart way to get those funds.
What is Home Equity
But what is home equity? Home equity is just the difference between your property’s market value and the balance of your mortgage. So, if your home is mortgage-free then it’s the full value of the property. But even if you’ve only owned your home for a few years, you’ll likely have built up a good amount of equity in the home. And this can be accessed for your own needs – such as renovating.
Read more: Equity home loans and how they can help you
How to Calculate the Equity in Your Home
Before you can determine whether you should access the equity in your home, you need to figure out how much you have available for use. And that means first calculating the equity in your home.
Your Home Loan Equity Calculation
- First check your records to confirm how much of a mortgage there is on your property.
- Next, find the estimated market value of your home. The best way to do this is by getting a real estate agent valuation. The agent will use the particulars of your home and comparable sales in the area to find an appropriate estimated value.
- Finally, subtract your mortgage from the estimated value of the home to get the estimated equity in your home.
Example: Your mortgage is $500,000. A real estate valuation shows the value at $900,000. You have $200,000 of estimated equity in your home.
A Note About Accessible Equity
Just because you have $200,000 worth of equity in your home, doesn’t mean that it will all be accessible for renovations. Your ability to service the additional amounts – how much additional repayments you can manage based on your income and expenses – will be taken into consideration as well. Our experts can help you determine how much this will be for you in your specific circumstances.
How to Access the Equity in Your Home
Once you’ve determined how much you have available in terms of home equity, you’ll want to know how to access that equity for your renovation.
Step 1: Work Out a Dollar Amount
Work out the amount of money you need for your renovation project. If you want to use your equity to fund it, ensure that it falls within your accessible equity.
Step 2: Review Your Loan Options
Now is the time to start researching your home loan options. Our Lending Loop experts have access to a vast array of lenders, both bank and non-bank options, with hundreds of different loan products. We can ensure you know what all your options are and help you determine the best one for you.
Step 3: Work Out Costs and Fees
There will be costs and fees associated with each loan product. For example, if you switch from one lender to another, you may need to pay a break fee. And if you access more than 80% of your home loans equity, you may need to pay Lender’s Mortgage Insurance. We can help you find the most cost-effective options for your specific situation.
Step 4: Complete a Loan Application
Once you’ve determined the lender and the loan product you want, as well as the amount of equity you want to access, you will need to complete a loan application. Your Lending Loop broker can help you do that quickly and easily. And it won’t be long until you’re on your way to your ‘new home’.
Speak to an expert
Once you understand how to access the equity in your home, and you’re ready to do so, we’re ready to help. Our expert team can talk to you about how to get refinancing ready, and do the legwork involved in comparing home loans and any relevant fees.