Using equity to renovate your home

Renovations, small or big, can boost your property’s value if undertaken in a planned manner. Whether you decide to spend several thousands on fancy fittings or keep a modest budget to upgrade the basics, retouching the house in the right way can enhance comfort, style and savings.

Why renovate?

Have you bought a house that could do with some new features? Maybe a remodeled kitchen should be added? Or do you need to create some value additions before you sell the property?

Planned renovations can give your home a real boost in terms of style and comfort, and something as simple as interior styling could set a potential buyer’s heart fluttering.

What is equity?

Equity is the difference between what you owe on your home loan and the actual value of your home. So if your home is worth $2.5 million and you owe $1 million on your home loan currently, you have $1.5 million in equity. Considering you use 20 per cent of the available equity ($300,000) to renovate your kitchen and bathroom with the latest trends and accessories or maybe add a feature outside kitchen to enhance to your entertainment area or a state of the art home theatre room, your property value can go up to almost $2.1 million, thanks to the strategic and stylish value additions made by you.

Property renovations using equity in your home

It always pays to strategise your investments. Research what the buyers are looking for and what will fetch you the maximum returns. Consider the following additions:

• Feature plants to create sculpture and interest in your front garden, after all it is a buyer’s first impression of your property.
• Modernise the kitchen with a new coat of paint and adding the latest gadgets, or try a new modern tile or pattern or even a new bench top in the latest material trend.
• Adding an extra bathroom can significantly increase the property value.
• We all love fresh air and sunlight. Try to improve the ventilation and upgrade the windows and blinds with the latest fabrics and patterns
• Don’t want to spend much? Use colour smartly to give a modern look to the house. Throw in some nice upholstery and be amazed at the new look of your house.
• In case you are renovating the house for yourself, the criteria is a little different. Look for changes that will have the maximum impact on your comfort and also lead to savings. Think of proper insulation, better windows, a modern kitchen and a smarter bathroom.

Budget your spending
Before you start renovating, calculate how much you can afford to spend and borrow. Also, keep a small buffer in case you like something fancy while you go scouting for the planned renovations.

How to use equity in your home

Now that you know how much you can afford to borrow, you have two options – an equity loan or an equity line of credit. An equity loan means taking a loan against the equity in your house. You borrow a lump sum at a fixed interest rate and can club the repayments with your original loan.

On the other hand, a line of credit (akin to a credit card) allows you to withdraw funds as and when needed, up to a certain amount.

It may be a good idea to go for a line of credit in case you are remodeling in parts, say one room at a time. However, for a planned renovation, an equity loan with a fixed interest rate and scheduled repayments is a better idea.

Contact an expert
Whichever choice you make will completely depend on the type of renovations you intend to undertake. It is a good idea to contact a seasoned renovator for suggestions to enhance the value of your house. It also helps to contact a mortgage broker to get the best deals for using equity to fund your renovations.