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Has your property increased in value? Here’s how you could use equity to renovate your home!

First published 08 April 2021, 12:00 PM

According to recent research, over one in three Aussie home owners are considering selling their home<sup>1</sup>. And a whopping 87%<sup>2</sup> of these people plan on making a few improvements – like a kitchen or bathroom upgrade, prior to putting their place on the market.

For plenty of other home owners, renovations are a chance to get their home into tip top shape, create extra space for a growing family, or complete much-needed updates. 

If a renovation is on your radar, it’s worth exploring all the options available to fund the project. 

One of those options could be tapping into the equity you have in your home. And, with property prices increasing3, you may have more equity than you realise. 

Here's how it works.

First, let’s cut through the jargon. What actually is equity?

Home equity is the difference between your home’s current market value and the balance left owing on your home loan. 

Can rising property values impact how much equity I could access?

You bet! The property market is booming, and chances are you could be pleasantly surprised by how much equity you have.

Property prices nationally jumped 2.1%4 in February 2021 – the biggest monthly rise in 17 years according to CoreLogic. That means your home is likely to be worth more now than when you purchased it. In fact, your property could be worth considerably more if you’ve held the same home for several years. That’s great news for your home equity!

Refinancing can unlock the equity in your home

There is a way to access home equity that doesn’t involve selling up.

Refinancing your mortgage can be a way to tap into equity, taking out a new loan for the amount you wish to borrow. Added bonus: You may be able to switch to a lower rate and save.


Watch Emma in this quick Mortgage Minute video to find out when refinancing might be a good idea.

It pays to get good advice first – not only to find out how much equity you could access, but to see if refinancing is the step best suited to you.

To know more about whether refinancing can let you harness home equity to fund renovations, call your Mortgage Choice broker today.

Weigh up all your options

In addition to refinancing, other options are available to help with the cost of a renovation project. What’s best for you depends on your own situation. 

For instance, you may be able to use the funds available through a home loan redraw, or a personal loan, or maybe apply for a cash-out release on your existing property? 

It also pays to consider the type of renovation you're planning. For major structural projects like a second storey extension, a construction loan can be a useful option.

We’re here to help you make better choices for you

The key take-out is that renovating doesn’t have to mean dipping into precious cash savings. There is a range of funding choices available that can let you bring out the best in your home, without leaving your savings worse for wear. 

Expert advice could make all the difference when it comes to financing your renovations – and the best part is we do all the legwork for you when it comes to exploring the funding options that are available based on your personal needs.

Contact your local broker today and start putting the plans in place now for the future.

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Home Equity FAQs

Calculate home loan equity by taking your property's current market value and subtracting the remaining loan balance.

Property's market value - Remaining loan balance = Your home equity

For example, if your home is worth $700,000 and there is $300,000 remaining on your home loan, you have home equity worth $400,000.

However, bear in mind that not all of this will be accessible, with lenders only allowing you to borrow 80% of the property's value without being charged for Lender's Mortgage Insurance (LMI).

In other words, to avoid paying LMI, keep your Loan to Valuation Ratio (LVR) below 80%. In this given example, that means:

  • 80% of the property's market value = $560,000 (this is the maximum you can borrow without incurring LMI)
  • Remaining balance on loan = $300,000 (this is the amount you have already borrowed)
  • $560,000 - $300,000 = $260,000

So in this example, the amount of equity you can access without incurring LMI would be $260,000.

Remember, even if you have already paid LMI before, you would still need to pay it again if you try to access equity that exceeds 80% LVR.

Here's how it works. Let's say you want to buy an investment property with a market value of $400,000. There are also additional purchase costs (legal fees, stamp duty and so on) of $20,000, bringing the total cost to $420,000.

Assuming that you meet the loan approval requirements, a lender will fund 80% of the property’s market value - potentially more if you're prepared to pay Lenders Mortgage Insurance (LMI). That is, the bank will lend you $320,000 to buy the investment property. As the total cost of the property is $420,000 you still need an additional $100,000 for the deposit and other upfront expenses. This can come from the equity in your existing home.

Let's say the market value of your existing home is $500,000 and the balance of your mortgage is $300,000. The difference between the two is $200,000, which is your home equity.

As an investor, you can access up to 80% of your home equity (without the need to take out LMI), which equates to $160,000 in this example. Instead of coming up with a cash deposit for the additional $100,000 needed to buy the investment property, you can take this from the $160,000 of accessible equity in your existing home.

The available equity in your home is calculated at 80% of your home (without the need to take out LMI) less any current loans, which equates to $400,000 less $300,000 = $100,000.

Alternatively, some lenders will lend up to 95% of the property value less the existing mortgage, where LMI would be paid on the amount borrowed over 80%.

Other common uses other than buying a home, Equity can also be used toward Home Improvements, Car Loans or a holiday, all at Home Loan interest rates, which can be less expensive than using other forms of credit.

You might also be interested in:

  • Build vs renovate

    We weigh up the key issues in the decision to build versus renovate.

  • Increasing your property's street appeal

    We all know that first impressions are the most impactful and never is this more true than when dealing with property.

  • How to successfully plan your renovation

    Every successful renovation starts with a strong plan.

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    1 https://www.westpac.com.au/about-westpac/media/media-releases/2021/6-march/
    2     https://www.westpac.com.au/about-westpac/media/media-releases/2021/6-march/
    3     https://www.corelogic.com.au/news/australian-housing-values-reach-new-record-high-as-values-continue-to-rise-across
    4     https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf

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