Renovating a property to bring it up to date is often on the ‘to-do’ list for many homeowners – but finding the funds to make it happen can sometimes prove a challenge.
As an alternative to taking out a personal loan, you may be able to unlock a valuable resource in the form of home equity.
Home equity refers to the difference between your home’s current value and the balance of your home loan. For example, if your property is currently valued at $800,000, and you have $500,000 of your home loan still to pay off, then your home equity is $300,000.
The residential property market in Australia has performed well in recent years, with the latest data from the Australian Bureau of Statistics (December 2015) indicating property prices across the nation’s state and territory capitals have risen by 10.7% in the year to September 2015 alone. So, if you have been paying off your home loan for several years, then your equity could add up to a tidy sum.
A low cost funding option for your goals
One of the benefits of financing your goals through home equity rather than a personal loan is low cost access to funds. The interest rate charged on a home loan is typically far lower than the interest rate charged on any short term debt.
So, if you’ve acquired home equity, then how do you access it? The first step is to talk to your lender to find out how much equity you can tap into, and whether it’s right for your needs. Depending on your circumstances you may be able to take out a variation on your home loan so you can invest the equity in other ways such as a renovation, your children’s education, or other lifestyle goals.
While increasing your home loan may be just what you need to achieve some of your goals, or to diversify your wealth building portfolio, consider whether you can comfortably afford the increased home loan repayments before you go ahead.
For specific advice tailored to your circumstances, consider speaking to a professional financial adviser.
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