It’s often said that you need to spend money to make money. This is largely the case when it comes to your home. And it’s not relegated to large-scale home renovations; small home improvements can help add significant value to your property and deliver you a solid return on investment.
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That’s great news for homeowners, but there’s still that niggling fact that you first need to have access to the money before you can even consider embarking on the home improvements in the first place.
“Aussies seem to be looking to create the resort atmosphere in our own backyards with beautiful pool areas and alfresco areas with fully equipped kitchens. Architectural landscaping is becoming increasingly popular and even with the cost-of-living crunch, homeowners are happy to pay premium prices for their beautiful yards to increase that curb appeal,” says Kimberly Linder, Mortgage Broker from XCEL Finance.
Image: Supplied
Don’t worry, we’ve got you. Here’s our expert guide on how to renovate using home equity. Plus, we’ve outlined the top home improvements consistently recommended by real estate agents and experts that are most impactful for elevating your curb appeal.
Home equity, most importantly usable equity, is your secret weapon when it comes to financing your renovation with confidence. Put simply, equity is the difference between your property’s market value and the amount you owe on your home loan. The amount you can access, known as usable equity, depends on three things: your lender’s policies, your financial situation and how much of the property value they’re willing to lend against.
Linder provides a word of caution: “equity release means increasing your loan which in turn increases your repayments. Many Aussies believe that ‘equity’ is free money – but it’s not. Once it’s released, it is considered new debt.”
1. Redraw on your additional contributions
In periods of lower interest rate, try to build equity in your home loan and reduce the amount of interest you pay by making additional contributions or payments into your loan.
“This is a cost-effective strategy since you’re accessing funds you’ve already paid, often without extra fees,” says Siobhan Williams, Head of Mortgages at Pepper Money.
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2. Refinance for cash out
If you’re in need of cash for a DIY home improvement project or bathroom renovation, reach out to your current lender or another financial institution about refinancing your home.
Home loan refinancing is when you take out a new loan to pay off your current mortgage. It’s a smart way to potentially lower your interest rate, reduce monthly repayments, access equity, or switch to a loan that better suits your current needs.
If you refinance to access equity, the funds released can be used to renovate or improve your home, buy a car, or even go on a holiday.
“It’s important to consider that refinancing can reset your loan term, which may extend the time it takes to pay off your mortgage, even if your monthly repayments are lower. If your goal is to become debt-free sooner, make sure your new loan structure aligns with that objective.
“Pepper Money offers flexible and really helpful loan options for diverse financial situations, including self-employed and borrowers with unusual income,” says Williams.
3. Renovate to increase value
Making small, medium or large improvements to your home or property can increase its market value, which in turn could increase the equity in your property.
“Focus on upgrades that deliver strong returns. Think kitchen and bathroom renovations which typically add value. Be careful not to overcapitalise by making improvements that cost more than the value they’ll add to your property. It’s a good idea to seek expert advice and ensure you have the right approvals in place before starting any major work.”
Siobhan Williams, Head of Mortgages at Pepper Money
Image, right: Pepper Money Head of Mortgages, Siobhan Williams.
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4. Positive market changes
Quite often, if you own your property for long enough, the value of your property will naturally increase over time. This, in turn, will increase the equity in your home.
“To determine your home equity, subtract your remaining mortgage balance from your property’s current market value. You can estimate the market value using online tools or get a formal appraisal for a more precise figure,” says Linder.
5. Try alternative loan options
If you don’t have enough equity in your property, there may be the option to borrow more money on top of your existing mortgage. An advance could help but be aware that it could be at a different interest rate. Your lender or broker will be able to advise you on which loan will best achieve your goals.
For a personalised quote based on your circumstances, you can access Pepper Money’s home loan ‘Get My Rate’ tool here. Best yet, it won’t impact your credit score.
Taking out a fixed-rate personal loan could also be a way to ensure cash flow throughout a project and help you to manage your upfront renovation costs. Similarly, using an offset account — which links your savings to your home loan — can reduce the interest you pay and help you build equity more efficiently over time.
The following home improvements are considered the most impactful for elevating curb appeal and adding value:
Landscaping Upgrades: Landscaping, tidy lawns, fresh mulch, and planting colourful flowers helps to boost your property’s curb appeal.
Repainting the Exterior: Giving your property a fresh lick of paint can also give a little boost to its value.
Enhanced Entryways: Improving pathways, and replacing or enhancing house numbers and mailboxes.
Exterior Lighting: Adding or upgrading outdoor lighting not only improves safety but highlights architectural features and gardens, enhancing sale prospects.
General Maintenance: Cleaning windows, repairing fences, tidying up the front garden, and ensuring paths are clear and well-kept are essential for making a strong first impression.
Driveway and Garage Appearance: Freshening up or replacing driveway surfaces and ensuring the garage door is clean and contemporary can help to lift a property’s street presence.
Information provided is factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
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