With Christmas approaching, and parang and ham on the brain, have you been thinking about any home improvement projects to get your house ready for the holidays? Whether it’s repairing a leaky roof or upgrading your kitchen, the big question is often how to foot the bill for these projects. Well, one way to finance expenses like this is to use the equity in your home! Take a look below as we explain more about how home equity works and how you can use it to fund major expenses.
Understanding Home Equity
Home equity refers to the difference between the market value of your property and any outstanding debt you have on this property. Since your home is an asset which has the possibility of appreciating in value over time, this provides an opportunity for you to use this equity. This means a home equity loan might be just the solution you are seeking to pay for that additional bedroom you’ve been hoping to add.
You can use a home equity loan to finance a variety of expenses such as long-term investment products, tertiary education fees for your children, unforeseen medical bills or home improvement projects like the ones we’ve mentioned.
How Home Equity Works
Let’s say our home owner, Maria purchased a home a few years ago for $750,000. The amount still owed on the mortgage is $600,000 and over time her property value has appreciated to $1,000,000. The home equity in the case would be the market value of the property ($1,000,000) minus the outstanding debt ($600,000), which in this example equals $400,000.
Maria’s brother Steve, and his family who live abroad, are coming to stay with Maria’s family for Christmas. Maria’s home has only one bathroom so to make it more comfortable for everyone (and avoid the morning race of who gets to shower first), she would like to add on another bathroom in time for their visit. Maria can use the equity in her property ($400,000) to fund this home renovation project, help ensure she has happy house guests, and increase her home’s value.
If home equity financing sounds like it might be a good fit for your needs, we’d be happy to have a chat with you. Our contact details can be found on our contact page here so please don’t hesitate to get in touch if you have any questions.