Put it on the house


Just over 3 years ago the median house price in Penrith was a touch under $400,000. Fast forward to today and the median house price is $650,000. If you were one of the lucky ones that owned property 3 or more years ago you could have a bit of money available to you and all you have to do is ask. If you were to refinance to a lower rate at the same time it is possible that you could renovate and your monthly mortgage repayment stays the same or even drops meaning you quite literally put it on the house.

Once you've asked you need to be able to be able to make the extra repayments. This is where the banks need to be safe as they don't want to lend money that isn't going to be repaid and no one wants to see you lose your home. To lean on the side of caution most banks will check that you can afford repayments if interest rates were 7.25% or more. This does occasionally see some buyers turned away by some lenders but it is in the best interests of both parties. It's also another great reason to use a broker as some lenders have higher expectations than others.

I don't really suggest spending money for the sake of spending but if you have a goal or plans for the future that involve a large outlay of money using the equity in your home may be the way to go. If you are in the market for a new car, you're looking at your kitchen thinking it might be time to give it an update or maybe you need a bit more room and an extension or extra storey is on the cards, accessing the equity in your house is definitely an option. I recently refinanced a client that fully renovated their house, effectively doubling the size of their mortgage and their repayments dropped by $7 a week. The trade off was that their remaining loan period went from 10 years to 30 years though but they were comfortable that the renovation would add value and when they sell the extra loan funds wouldn't be an issue.

If you have goals for beyond the immediate horizon however and are looking towards retirement and building your wealth perhaps you are considering purchasing an investment property. Funnily enough this isn't necessarily as hard as you would expect provided you have the equity in your home. The scenario would look something like this, you have your house valued at approximately $650,000 and have a mortgage over the property for $400,000. You have found a suitable property for $400,000. You would need a 20% deposit plus stamp duty and allowances for conveyancing and pest and building inspections. Deposit of $80,000, Stamp Duty of about $14,000, allow $2000 for conveyancing and $500 for pest and building inspections just to be safe. Total of $96,500 (these numbers are all approximate except for the deposit amount). As far as proving you can afford an investment property, lenders will take into account any rental income the property will earn as well as take into account negative gearing if that is relevant to your scenario. So even if you were to get knocked back for a $300,000 increase to your mortgage to renovate, it is possible you could borrow $350,000 or more to buy an investment property.

There's a few things you could be doing with the money sitting in your house. Alternatively you can leave it sit there and pay off the entire mortgage and there's some helpful tips on how to do this sooner here. If you do want to do some things with it, I'd be more than happy to help.