Can I use my Equity to Renovate My Home
What is Equity?
Equity is the value of a property minus the owner’s outstanding mortgage balance. (eg, House is valued at $500k and outstanding home loan balance is $350k. Therefore the equity available in this home is $150k)
To access the equity in your home, you will need to refinance your mortgage for the new amount that you wish to borrow. During this refinance of your mortgage, you may like to take this opportunity to switch to an interest only repayment option to help with the cost of the renovations.
How it Works?
The easiest way to access the funds is by attaching a Line of Credit facility to your home loan. A line of credit facility allows you to borrow money, in a separate pool, up to a specified limit. The funds will be made available to you in your Line Of Credit account and you access them as required. Effectively, you will draw down the funds as you need them and subsequently only pay interest on the funds you have accessed.
Types of Renovations and how they affect you:
- Where the renovations are Non Structural (ie don’t affect the current structure of the house such as painting or changing carpet etc) you will most likely need to provide written quotes for the work to be carried out or for the items to be purchased.
- Where the renovations are Structural (ie may involve the knocking down of walls or moving plumbing) you will most likely need to provide a fixed price building contract.