1. ACCESS EXISTING EQUITY
What is equity? Simply put, equity is the difference between the current market value of your home and how much you still owe. For example, if your home is valued at $600,000 and your current loan is $360,000, your equity would be $240,000.
How can I access the equity in my home?
1. Accessing additional repayments
If you have been making additional repayments into you loan or offset account, it may be possible to redraw those additional funds as cash and use them to fund your renovation project.
2. Refinancing with your current lender
Also known by names such as ‘cash out’ or a ‘top up’, refinancing with your current lender is essentially applying to your bank for additional ‘cash out’ to pay for your renovation project. In exchange for the ‘cash out’, your bank will increase your loan by the same amount as the ‘cash out’. It is important member that your application for an increased loan will need to be assessed by the lender’s credit team and new loan contracts will need to be signed.
It is also a good time to negotiate a better interest rate with your lender. While there are no guarantees, there is no harm in asking. The refinance process varies depending on the nature of the deal, however often takes between 3 - 6 weeks.
3. Refinancing to new lender
If you bank is no longer competitive or your loan is no longer structured to your advantage, the same can be done by refinancing to a new lender. New lenders may provide better rates, lower repayments and more suitable features. Some lender may also offer rebates to refinance with them. Simply put, they may actually pay you to get your business! The refinance process varies depending on the nature of the deal, however often takes between 3 - 6 weeks.
NB - Accessing equity is the most common and almost always the most cost-effective finance option available as residential mortgage interest rates are generally much lower than personal loans, credit cards and short-term funding options.
2. PERSONAL LOANS
If accessing existing equity is not possible, a personal loan may be another option to consider.
They are typically less involved and quicker to process than home loans and therefore the money is available sooner. However, personal loan interest rates are usually considerably higher than residential mortgage rates and due to a smaller loan size, may only be suitable for minor renovations.
3. CREDIT CARDS
Similar to personal loans, however the interest rates are often even higher than personal loans. Furthermore, with the average Australian credit limit of under $10,000, they may only be useful for very small projects.
4. SHORT TERM FUNDS
This is usually the last port of call as short-term funding can be very expensive.
Furthermore, being short-term funds, the loan term is usually quite short and a good exit strategy would be required.
For example, it may work in a situation where you need $150,000 to complete a renovation so that you can sell your property for full market price.
‘Home Loan Health Check’ – it’s as easy as A, B, C
We are always looking for suitable products and competitive rates for our clients.
Question – How do I know if my home loan rate still competitive? Answer - Rates change frequently and some lenders are more competitive than others
We recommend you consider the following steps:
A. Send me your current interest rate and loan balance
B. I will contact your bank regarding a rate reduction
C. If your bank isn't competitive or meeting the market, we can look at options
In the last couple of months, we have:
helped four clients reduce their loan repayments by helping them fix their loans at historically low rates
negotiated a lower variable for a further two clients at their existing bank
Refinanced a client to a new lender to take advantage of a lower rate and a refinance rebate worth $4,000
*Bryan Narunsky is a qualified finance broker and the owner of Front Door Finance in Sydney. He can be contacted on 0404 933 447 or bryan@frontdoorfinance.com.au
Comments