Use home equity to renovate

February 20, 2018 in Latest News

Use home equity to renovate

Our TV’s are flooded with renovation shows and great ideas and tips on how to best renovate either on a budget. It is rare that we find exactly what we are looking for when buying an existing home so why waste time trying to find the perfect home, renovate what you have. There is no need to uproot your family when with a little imagination you can create the perfect spot for your family to live and play.

Using the equity in your home may be the cheapest way to obtain funds to renovate. Equity is the difference between the value of your home and the balance of your home loan. In the banking world we call it LVR (loan to value ratio). Lenders have a maximum LVR limit. The credit union LVR limit is 80%. While you can go over 80% you would be required to pay lender’s mortgage insurance (LMI) which can be expensive so always strive to keep your LVR 80% or below.

Here’s an example on how LVR works.

Your home is valued at $450,000 and you still owe $300,000

$450,000 – $300,000 = $150,000 equity

$300,000/$450,000×100 = 66% loan to value ratio (LVR)

On this scenario you could increase your loan by $60,000 to help with renovations and staying at 80% LVR.

You need to ensure that renovations won’t cost you more than what they’re worth to the value of your home. Knowing how much you should spend is all about research so don’t skip over it because it can make all the difference when you finally move on. Use your local real estate agent to help you estimate the value of your home and research the market to find out what similar homes in your area are selling for. This will give you some idea on how much you should spend.

At Maleny Credit Union we are experienced home loan lenders.   For a chat about your current circumstances give myself or Sandra a call. We would love the opportunity to help, we can even come to you!