5 ways to finance your renovation
Are you looking to transform your totally loveable but slightly daggy property into your dream home?
With property prices on the rise in many markets, renovating may be a more suitable option for many people rather than moving on to another property.
Whether you’re looking to rework your garden into a tropical oasis, update your 1960s bathroom or remodel your retro blue kitchen, there are several ways to fund your renovation.
1. Use your equity
Equity is the difference between the value of your property and what you owe the bank.
Say you owe $500,000 and your property is valued at $1 million. Your equity is $500,000.
Generally speaking, borrowers can access up to 80% of their home’s equity, but it does depend on the lender and what your plans are with the money. If you borrow more than 80% of your property’s value, you’ll likely have to pay lenders’ mortgage insurance.
If you’ve paid down your mortgage somewhat or the value of your property has increased, speak to us about whether you could use your equity to fund your renovation.
We’ll explain whether you can top-up your existing loan and how that may affect your repayments, interest payable and loan term.
2. Refinance your home loan
Another option to consider is refinancing your home loan to fund your renovation goals.
By refinancing, either with your current or to a new lender, you could increase the amount you owe to the bank and thereby gain access to renovation funds.
Talk to us and we’ll assess whether it may be beneficial to refinance and run through any costs involved.
3. Redraw funds
If you have a redraw facility and you’ve been making extra repayments on your home loan, you may be able to redraw those funds for your renovation.
Keep in mind that you’ll only be able to access whatever additional payments you’ve made. This may work for smaller renos, but if you have a more costly renovation in mind, you may have to explore other finance options.
4. Take out a construction loan
If your renovation involves a knock-down rebuild, an extension, or major structural changes like adding rooms, a construction loan may be worth considering.
Construction loans differ from regular home loans in that the lender releases portions of the loan in stages as the property is built.
Usually you make interest-only repayments during the construction phase. Once the renovation is finished, you can start making principal and interest repayments.
5. Apply for a personal loan
Smaller renovation projects may be financed with a personal loan. There are two options to consider.
A secured loan means you use one of your assets, such as a vehicle, as collateral for the loan. Secured personal loans usually have lower interest rates than unsecured loans, where no asset is required as security.
Unsecured loans, on the other hand, don’t require collateral. While this means you won’t risk losing an asset, unsecured loans typically come with higher interest rates, lower borrowing limits, and shorter repayment terms compared to secured loans.
Ready to get started?
Renovating can increase the value of your property and boost its comfort factor.
Whatever your reno goals, we’re here to work through the finance side of things to help get your project off the ground. Get in touch today for tailored financial advice to meet your unique needs.