How do people get loads of money to be able to do extensions and new kitchens.
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You buy your house for five hundred grand. You put down one hundred and borrow four hundred.
The value of your home goes up to seven hundred grand.
You still owe the four hundred you borrowed but now have two hundred extra available because the bank can loan you money against the increased value of the home. So, you borrow another one hundred grand and do renovations, upgrades, etc.
The bank is happy. You bought a house that went up in value and you’ve borrowed against that increase in value (which you could have pocketed if you sold at the new value) in order to increase the value of the home that the bank has a lien against. That ensures that the home won’t be abandoned and even if it is, it will still be worth more than the percentage they lended against – meaning they can more easily get back their money if they need to do so.
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