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How To Release Equity From Your Home For Home Improvements
Now that we are spending the vast majority of our time at home, many homeowners are considering a redecorating or remodelling project to make the most of the space they so frequently occupy.
The good news is that rather than taking out a hefty personal loan to achieve this, an equity release mortgage could be an alternative – and ideal – solution.
What is an equity release mortgage?
Equity is the difference between the current value of a house and the amount owed on it. If the house is worth significantly more than homeowners owe on it, you may be able to release equity to repair aspects of your house or make improvements to it.
By releasing a certain amount of equity from your home to cover the required work, you are essentially adding that same amount to your existing mortgage. While this approach can increase your monthly mortgage payments, you may be able to lower the increase by switching your mortgage.
Benefits of using equity release for home improvements
The advantage of using an equity release mortgage for home improvements is that homeowners can release some of the funds tied up in the house and enjoy a new and improved home without selling it. Homeowners may want to make improvements by upgrading a tired-looking kitchen, putting in a new bedroom or generally making the home a better place to live.
So, while you may be increasing the value of your home, the disadvantage is that you will most likely be increasing your mortgage term or total repayment amount.
There are a number of other factors homeowners need to consider if they want to use equity release to fund their renovation project and Symmetry Financial can help with that. We are here to help you figure out which options are best for you and how available those options are to you.
For now, let’s outline the key benefits.
Benefits of Releasing Equity From Your Home For Home Improvements
- Low-interest rates – an equity release mortgage typically carries a lower interest rate than a credit Union loan meaning your individual monthly repayments may be lower than if you were to take out a personal loan.
- Tax deduction – the interest paid against the mortgage is tax deductible, if the property is ‘Buy to Let’.
- Increased home value – home improvements can add value to the home. A local estate agent can predict the valuation of a house after the renovation.
Finding the best rates
If a homeowner has done their research, understands the risks and decides to proceed with an equity release, they need to find the best interest rates. The overall aim should be to borrow less and pay off the equity loan as quickly as possible.
If homeowners borrow too much, they may find it difficult to keep up with these payments. As a result, they will face an increased risk of losing their home.
Get the most out of an equity release
Ideally, when it comes to home improvements, this option should really only be used for substantial renovations or for something that will add value to the home. It is not something to consider if you are simply in need of a new sofa.
Estimate the project cost before applying, set a budget and stick to it. Discuss the scope and estimate with professionals. Home improvements may increase the equity but not return 100 percent of the amount spent on renovations. We also always recommend adding 15 – 20 percent contingency to any estimate.
Other reasons to consider an equity release mortgage
Debt consolidation
This is where you combine all of your outstanding loans into one. Interest rates on home loans are generally at a much lower rate than that of the interest rates you would have to pay on a personal loan or credit card, for example.
Another advantage of debt consolidation is the appeal of having just one monthly repayment to worry about. Streamlining your finances can make it easier and more manageable.
There is also the possibility that you may find yourself paying out a lower monthly amount spread over a longer term, which may help to alleviate some pressure.
Holiday home or deposit for a new home
If you are in the market for a second home, for the purpose of upgrading or downgrading from your current home, to acquire a rental property or maybe you wish to purchase a holiday home, using an equity release mortgage may be the perfect option for you.
If the value of your home is greater than what you now owe on your mortgage, you could ‘top up’ your mortgage through an equity release. Although with an equity release mortgage you can borrow anything from €15,000 up to 90% of the value in your home, the Central Bank rules for anyone buying a second home state that the most you can borrow is 80% of the value of the home.
The amount you can borrow will also depend on what you can comfortably afford to repay monthly.
Conclusion
If a homeowner is looking to renovate their house, then tapping into equity may be a more suitable way to get funding. Make sure to research the best deals, because a small difference in interest rates can save big money over the years. Before making any decisions, make it a priority to get legal and financial advice.
We would be delighted to talk to you about your vision and how we can make it a reality. Get in touch now to speak to one of our expert advisors.
If you’d like a free, no-obligation consultation for your mortgage, pension or financial needs, get in touch here, call us on 01 6831673 or email us directly on info@symmetryfinancial.ie.
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