7 Ways to Fund Your Home Renovation and Maximize Your Property’s Potential

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. Dip into your savings

If you have a savings stash you can dip into to finance your renovation, you could avoid borrowing money and could save on interest in the long run. However, there are a couple of things to think about.

Firstly, is your savings account offsetting your mortgage? If your savings are in an offset account, make sure you know the difference in mortgage repayments to understand the impact if you have less money offsetting your home loan.

Also, it can be handy to have an emergency fund for unexpected expenses, like additional renovation costs or a broken-down car. It’s good to have money set aside, or a credit card in your pocket just in case.

2. 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.

3. Top up your existing home loan

Topping up your home loan could be another solution to financing your home renovation. Topping up your home loan basically means you’re increasing your loan amount and is a way to borrow extra money against your home. If you have equity in your home and the ability to make extra repayments, you lender may increase your existing home loan limit so you can pay for your home renovations.

Topping up your mortgages usually costs less than taking out another type of loan because home loans generally have lower interest rates than credit cards or personal loans. However it’s important to understand that topping up your home loan does mean you’re taking on more debt and that your loan repayments may increase as a result.

4. 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.

5. Redraw your extra home loan repayments

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.

6. Consider 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 work a little differently to regular home loans. As the builders complete various stages of the renovation, payments from the bank are progressively released to the builder. This helps to monitor the progress of the renovation and means you don’t have to worry about managing payments to the builder directly. You make interest only repayments on your loan until the renovation is finished, which means you could have some extra cash handy during the construction period.

Usually you make interest-only repayments during the construction phase. Once the renovation is finished, you can start making principal (loan amount) and interest repayments or you can continue to pay interest only for a period of up to five years.

7. Apply for a personal loan

Depending on the size of your renovation and your savings balance, you might need to borrow money. A personal loan for home improvements usually has a lower minimum loan amount than the minimum required to ap ply for a home loan increase or construction loan.

There are generally two standard options when it comes to personal loans – secured and unsecured.

A secured loan…

• Lets you use an asset (like a car or motorcycle) as security for the loan
• Often has a lower interest rate than an unsecured loan.

An unsecured loan…

• Can be a bit quicker and easier to set up because no security is needed
• Often has a lower minimum and maximum amount than a secured loan or home loan – so if your renovations are only small this could be an option for you.

How to choose the best option for your situation

When you’re comparing your finance options, it’s important to weigh up all the pros and cons associated with each option. You also need to have a clear idea of your budget. Depending on the size of the project and available funding, one option may be more suitable than another.

For example, let’s say you’re doing a major renovation that involves structural work. In this situation, a construction loan would be an ideal financing solution compared to say a line of credit loan.

FinSource tips on refinancing to renovate

• Get a valuer out to see how much equity you have in your property. From here you can budget your renovations, and ensure your loan isn’t too hefty.
• Check out the values of properties in your area. There’s no point shelling out for renovations if your home is going to be well above the average price for the suburb; potential buyers will pass on your house for a cheaper option.
• Don’t borrow more than 80% of your property’s value! You’ll have to pay Lender’s Mortgage Insurance which will guarantee your upfront costs don’t outweigh the long term benefits.
• Know exactly what you want to do in your renovations before going to a lender. It’ll help them assist you in what loan is best for you.

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.

 

Disclaimer: This blog offers general information on mortgages and finance for informational purposes only. It is not a substitute for personalized advice from a qualified mortgage professional or financial advisor. Use your discretion and seek professional guidance based on your individual circumstances.