Unlock the value of your home and upgrade your lifestyle

A key advantage in owning your own home is seeing its value increase, creating wealth for your long-term future.

With the recent spike in house prices – up an average of 21% nationally last year – owners have seen the value of their properties skyrocket. The result has been a dramatic increase in wealth unlocked by using the equity in your mortgage.

Equity is the difference between the value of your home and the size of your home loan. And you can invest this credit to improve your home and enhance your lifestyle.

Many homeowners choose to use their increased equity to upgrade their homes rather than buy a new property, spending weekends house-hunting, enduring the stress of auctions and negotiation and paying taxes, levies and legal fees.

This is one reason why renovations are all the rage right now. We're seeing owners use their loan equity to build a granny flat, create a home office, or install a new kitchen or bathroom. These projects can add to the enjoyment of yourr current home and increase its value further by tens of thousands of dollars.

You'll need to check that you have a suitable lending arrangement to spend your equity. You may need to apply to refinance. Your lender will independently revalue your home as part of the approval process, so it can take some time to finalise. Your broker will step you through the process.

By taking this approach to financing a renovation, you'll avoid the expense of applying for a new loan or being forced into a separate loan that may have additional fees and a higher interest rate.

Here are a few ideas for you before diving into a renovation project.

• Ask at least three reputable builders or suppliers for quotes. You should have a good idea of what your project will cost before you go to the trouble of applying to use the equity in your home. Add an extra 10-20% to the quotes to cover unforeseen problems during construction.
• Discuss your plan with your mortgage broker or a qualified financial adviser. You want to be confident your planned renovation is affordable, meets your overall wealth-creation goals, and is a good investment.
• Talk to a real estate agent about the local market in your area, so you can weigh up the value of renovating against moving home. Both choices have their challenges and benefits. Agents often have great ideas on features that add value.
• Check with your broker about whether you might be required to pay Lenders Mortgage Insurance if you go beyond the 80% loan-to-value ratio (LVR). What is LVR? It's insurance that protects the lender in the event you default. As a rule, lenders insist on this policy if you go over the 80% threshold.

This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.