If you’ve been agonizing over a home upgrade you’ve come to the right place to learn how to use your home’s equity for kitchen renovations. The average amount people in Ontario spend to remodel their kitchens is around $25,593. If your kitchen needs an update, do you have this kind of money available to pay for the project?
Some people may have extra money to use, but most don’t.
Fortunately, you might be able to use your home’s equity to pay for the renovations you want to complete in your home.
Getting a home equity loan isn’t difficult, yet it takes some time. If you’re interested in learning more about this, continue reading this guide as we explain everything you need to know about home equity loans.
The Definition of Home Equity
As we begin discussing using your home’s equity to pay for home renovations, you might have questions about home equity. What is it? How can you calculate it?
Home equity refers to the amount of your home you actually own. You calculate it by subtracting your mortgage loan balance from your home’s appraised value.
For example, if your home’s appraised value is $300,000, and you owe $200,000, your equity amount is $100,000. You own approximately one-third of your home outright.
The equity amount is the amount of money you’d have in your pocket if you sold your house for the appraised value. Because you own this amount, you can borrow some of it through a second mortgage loan.
Most lenders won’t lend 100% of a home’s value, but they will usually lend around 80%. Would you like to learn how you can access this money to pay for your renovations?
Continue reading as we discuss how you can access the equity in your home if you need a way to pay for home renovations among other things.
How to Access Your Home’s Equity
To access your home’s equity, you’ll need to apply for a home equity loan through a mortgage lender. When you apply, the lender will verify several things before approving the loan.
One thing that matters to lenders is a person’s loan-to-value ratio. The lender will closely examine how much you owe on the house compared to how much it’s worth.
Before you can close on a home equity loan, your lender may require an appraisal.
The appraised value is what the lender uses to determine if you have enough equity in your home. They also use this to determine how much money to offer you through a home equity loan.
Using a home’s equity to access cash is one of the best ways to get some money when you need it for home repairs, renovations, projects, or other things.
Other Factors That Affect Your Ability to Get a Home Equity Loan
When you apply for a home equity loan, the amount of remaining equity available is the main driver towards getting you approved for extra money.
For example, when you’re borrowing money, lenders look at your income and debts. Most lenders compare a person’s income and debts to see where they stand.
If a person owes too much money, they might not be able to afford another loan. If this occurs, the lender might deny the loan request.
Lenders also factor in a person’s creditworthiness, and they often base this on the person’s credit score. A person with a high score is a person worthy of borrowing money. People with low credit might be too much of a risk.
Your lender might also ask what the purpose is for the loan request. They might want to make sure you’re using the money wisely. Using it to pay for a kitchen remodeling project is a smart way to use the money.
The Benefits of Home Equity Loans
Now that we’ve talked about what home equity is and how home equity loans work, you might wonder about the benefits they offer. Here are some of the primary benefits of getting a home equity loan:
Low Interest Rate
Home equity loans generally have lower interest rates than other loan types. Having a lower interest rate helps you save money, as you pay less interest on the loan.
Home equity loans also offer low payments. When you have a lower rate, your payments will naturally be less. If your budget doesn’t have room for a high payment, this might be the way to go.
You Get All the Cash
Another benefit of a home equity loan is that you get all the money. After the lender approves the loan, they’ll give you a cheque for the proceeds. You can spend the money however you wish.
You Might Get a Tax Deduction
In some cases, you can deduct the interest you pay on a home equity loan, which results in lower taxes.
You’re Using Your Own Money in a Sense
Finally, borrowing money through a home equity loan is like borrowing money from yourself. The equity belongs to you. So, borrowing the money is like you’re using your own money.
Other Ways to Pay for Home Renovations
In addition to getting a home equity loan, you can pay for home renovations in other ways. For example, you could pay for the work on your credit card if your budget allows you to repay the balance quickly.
Financing home improvements is also something you can do through a home refinance loan. When you refinance, you can tap into your home’s equity by getting a new loan.
The new loan you get is higher than your current loan because it includes your current balance plus some of the equity you took from the house through the loan.
You might also want to look into personal loans as an option. The downside to a personal loan is that you might pay a higher interest rate on the money you borrow.
Contact Us to Apply for a Home Equity Loan
Using your home’s equity is a great way to pay for a kitchen renovation project, but it’s also a great way to pay for other household repairs.
If you’d like to learn more about this option, contact us. We can help you learn your options and find the right solution for your situation.