How Equity Loans Add Value to Property

Michelle Tuvey Michelle Tuvey | Loan Underwriter

If you've heard it once, you've heard it a thousand times: making certain kinds of improvements to your home adds value to the property. We all know this to be true. Thus, homeowners take out equity loans in order to make home improvements and banks lend money knowing that properties with higher values protect them against serious financial loss in the event of default. It is a win-win situation for everyone involved.

As a new homeowner yourself, you might not be thoroughly convinced of the value of equity loans for increasing property value. To help you along, we draw your attention to an article published by the Express on 22nd March (2017). Katrina Turrill wrote the article; it targeted a certain kind of flooring that experts say could add thousands of pounds to the value of a typical middle-class home.

Turrill began her piece by reminding readers that not every home improvement actually increases property value. Particularly where floors are concerned, some improvements actually reduce a home's resale price. Flooring that should be avoided includes things like cheap laminates and vinyl products.

Hardwood Floors Are Tops

Now that you know cheap vinyl and laminates are not the best options for flooring upgrades, you may already know where we are going with this. That's right; experts say that hardwood floors are the best. Hardwood flooring is durable, tough, beautiful, and timeless. Furthermore, people associate hardwood floors with social standing and financial success. They are more likely to spend a little extra on a home with hardwoods in order to feel good about their purchases than saving some money on a home with less desirable flooring.

Turrill notes that not everyone can afford genuine hardwoods. Her solution is to go with high-quality laminates that are so close to the real thing that they are barely distinguishable. Yes, it goes against her previous advice, but the distinction here is cheap laminate versus a high-quality product.

She also notes that putting hardwood floors in bathrooms and kitchens is neither practical nor wise. Again, she recommends a high-quality laminate that is water-resistant. Even in these sensitive areas, Turrill advises against vinyl floors.

Let's Talk Home Equity

With the flooring discussion out of the way, it is time to tie all of this in with home equity. Let us start with equity loans themselves. Equity loans are secured loans that homeowners apply for by using their existing equity as collateral. In essence, the property owner is releasing the value of his or her equity in order to raise the financial capital to make home improvements. It is all pretty simple thus far. Now let's take it up a notch.

Let us assume Turrill's assessment of hardwood flooring is spot on. Let's assume that by spending £600, as Turrill suggests, you can increase the value of your property by £1,300. That is a net gain of £700. But it gets better. Not only does the value of your property increase but your equity increases as well. Through this process, home equity loans use equity to increase equity.

What other kind of financial product does that for the consumer? Savings accounts certainly don't do it, nor do personal loans and credit cards. Not even investments in stocks and shares create growth the same way home equity loans do. That is what makes equity borrowing so attractive and powerful.

Yes, equity loans can increase property value when homeowners use the cash to do the right kinds of renovations. Whether it's hardwood floors or a completely updated kitchen, your home could benefit from the equity you already possess.


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