Using your home equity for a home loan top up
First, let’s understand equity. Equity is the difference between your property value and the amount you still owe on your home loan. Home equity is usually built up over time as you pay down your mortgage, and if the market value of the property increases.
To get an idea of how much equity is in your home, use our home equity calculator. Keep in mind that you won’t be able to access all the equity in your property – your lender will calculate how much of it you can borrow. At Westpac, we calculate your usable equity as 80 per cent of the total property value, minus the outstanding balance of your home loan. In some cases, you might be able to leverage up to 90 per cent of your usable equity for a home loan top up. In order to do that, you'll need to pay lenders mortgage insurance.
So how can you use your equity in your home to fund your home renovation? A home loan top up (or increase) allows you to borrow extra money against your current home. If you have equity in your home (and room in your budget to make additional repayments), you could potentially ‘top up’ your existing home loan amount to help you finance your renovation project with a home loan increase.
If you opt for a home loan increase, you could either combine your new home loan balance with your current mortgage repayments or keep it separate on a different loan term. Going with a separate loan gives you the option to choose a different loan type, repayment type and interest rate than you main home loan, if you want to. The choice is yours.
It’s important to remember that topping up your existing home loan might increase your monthly payments or lengthen the time it takes to pay off your home loan. See what topping up your existing loan could mean for you with our home loan repayments calculator.
What’s a redraw facility?
A redraw facility is a home loan feature that lets you make extra repayments on your mortgage to help you pay it off sooner, while still giving you the flexibility to withdraw that money if you want to. This could come in handy if you need to access funds down the track.
Depending on the type of home loan you have (and if you’re ahead in your repayments and have been making extra payments), you might be able to access extra cash to help pay for your home renovation costs. Using the money in your redraw facility means you won't need to borrow additional funds or take on more debt from your lender - you'll be using money you've saved and won't need to look into a home loan or refinancing options.
You can find out how much you can redraw in your internet banking. Feel free to reach out to our team if you have any questions.
How could a home loan refinance help you renovate?
Taking on a renovation might be a good time to review your existing home loan and explore whether it's still ticking the boxes for you and your family.
The main goal of refinancing your home loan to renovate is to increase the loan amount you owe to your lender in order to gain the capital for your reno.
In most cases, refinancing your home loan also comes with the added bonus of getting a more competitive interest rate than your current home loan, while also providing the funds you need to get the job done. A home loan interest rate is often lower than the interest rate your would receive with a personal loan too - so refinancing your home loan is definitely an option worth considering.
Bank with another lender? No worries. Our team can assist in finding you a home loan that better suits your renovation needs and help you refinance from your current lender and make the switch to Westpac.
What is a construction or building loan option?
If you’re looking at taking on a larger project, like a knock-down, remodel or major renovation, a construction loan option could be the way to go. Wondering what’s the benefit compared with other loans? Well, you’ll receive your money in increments – allowing you (or your builder) to pay invoices and bills as they come in. Rather than dealing with a lump sum, these progress payments might help you manage your cash flow better. During this time, you'll only pay interest on funds drawn down rather than a lump sum, which means that your home loan repayments will be lower.
The best bit? You’ll save a bit of money, as you’re only paying interest on the progress payments made so far. After the building and construction loan is fully drawn down, you’ll generally revert to paying principal and interest.
Could a personal loan help?
If you don’t have enough equity in your home, or you don’t have a redraw facility, you might want to check your eligibility for a personal loan for your home renovations. Generally speaking, a personal loan could be ideal for getting smaller renovations underway, like adding a deck or giving your laundry a facelift. At Westpac, we offer unsecured personal loans from between $4,000 and $50,000 – and the funds are deposited into your account as a lump sum. Personal loans often have a lower interest rate than credit cards (but a personal loan rate may however be higher than a home loan rate), and there’s no need to provide collateral if you decide to go with an unsecured personal loan.
Questions? We've got the answers
As always, we’re here to help – every step of the way. Westpac has a range of home loans to suit your needs and our home loan specialists can get you where you want to go. For more information on the type of loan that might be right for you to fund your home renovations, call us on 131 900 or visit a branch to chat to your local Home Finance Manager.