How much will banks let you borrow for renovations?
Whilst you may have $150,000 in equity (as in the above example), banks will let you access 80% of the value of your home (currently) for renovations.
If your home is valued at $500,000, 80% of $500,000 = $400,000, less the existing home loan of $350,000, means you have $50,000 available to use towards renovating your home.
Can you access above 80% of the value of your home? Yes, usually you can access up to 90%, however in most cases banks will charge you mortgage insurance (as the perceived risk for them is higher). This could be anywhere from $1,500 to $7,000. In some cases this can be added to your loan, rather than having to pay for it with your savings.
Whilst it’s encouraging to know you can access equity, it’s also worth considering saving up the cash to do renovations. It often takes years to pay down $50,000 of debt on your home loan and whilst renovating may add value to your home, it most cases doing a renovation is something most people can be delay until they have the savings in place. If you are approaching retirement, keep in mind the impact of what taking on more debt might mean for your plans to stop working sooner rather than later.
Of course, everyone’s circumstances are different so please feel free to contact us directly if you would like to know more about your options to renovate or any other home loan related queries.