Everyone has a dream house in mind. Wherever you are on the property market, and however far you may be from putting the finishing touches to your unique homely vision, that vision exists – and is much more accessible than you may think.
Dream homes are often pie-in-the-sky ideas, impossible to realise in the moment because of the hideous expense involved in installing a golden bathroom suite or boutique home cinema room. However, your realistic ideal for your current home can absolutely be made a reality, by using the value of your home itself. In reading on, you’ll find out precisely how…
- Understanding Home Equity and Its Potential
First, let’s get to grips with what home equity actually is – then, how it can be effectively utilised to help you unlock the potential of future (and future-proofed) home renovations. Fundamentally, the equity you have in your home is calculated as the difference between its current market value and your outstanding mortgage balance; you could visualise this as how much of your home is actually ‘yours’, if you’re struggling to understand it.
This isn’t quite the truth of the matter, but it gets close to giving you an idea of what equity can do for you. This amount is a proportion of your home’s value that isn’t beholden to debt elsewhere, and which can be used to access money for dream-home projects. How, though?
- Exploring Remortgaging Options
The most obvious example of accessing equity in your home is via remortgaging. This is, effectively, the taking-out of a new mortgage on your property; this new mortgage will reflect the present-day value of your home, and functionally pay off the remaining balance of your old mortgage – while also delivering you a proportion of your home’s equity back into your hands as cash. You’ve extracted the equity from your home, and are paying a new mortgage from scratch.
The advantages here include the potential for a better interest rate than your previous one, as well as the flexibility to choose your LTV ratio. Still, there’s risk – from potentially extending the amount of time you’re paying your home off for to the risk of failing to meet new affordability criteria.
- Considering Secured Loans for Larger Renovations
Alternatively, your home’s equity can be leveraged in a different way, so as to preserve your current mortgage arrangements. Secured loans enable you to use your home as a security against their value, meaning you borrow against your home without changing your mortgage situation. Your home becomes collateral for the loan you take out.
These are advantageous for meeting known costs in relation to home renovation works; with a good budget, you can select the right size of loan for your project and for the affordability of repayments. The risk here is that, in the event you fall foul of the repayment terms you agreed, your home could be sold to pay the remainder.
- Evaluating the Financial Impact and Risks
There is no financial product that comes without some level of risk – and when your home is at risk, it is a major decision you’re making. You need to take the time to understand the ramifications of each equity-leveraging method, in order to understand which risk you feel more comfortable taking.