Thinking about updating your home but worrying about the costs? Luckily, you have a number of options when it comes to home renovation financing.
Here Lendi explains how to fund a home renovation, from renovation loans to construction loans and everything in between.
Click the link to get a free, instant home renovation quote from Houseace.
1. Use your equity
One of the most popular easy home renovation financing options is to access your equity – and you may be able to do this if you’ve already paid off a portion of your home loan, or your home has increased in value over time (whether that’s through property upgrades to increase property value or just capital growth). Using your equity to borrow money for your renovation may be helpful in the long run, as you may be able to increase the value of your home by renovating and improving important features.
How can you access equity?
Considering refinancing for renovations? You can access your equity by refinancing your home loan. This means replacing your existing loan or updating the terms of your current loan, which can also help you get a lower interest rate or more flexible terms. Using your equity to refinance can help you get a sum of money for your renovation while also getting a better rate on your home loan.
Your lender may need to conduct a valuation of your home in order to estimate your current Loan to Value ratio (LVR) and ultimately calculate how much equity you can access.
When accessing equity it’s important to be aware that you are increasing your debt and your repayments are likely to increase, or it may take longer to pay off your loan in full.
2. Redraw facility
If your home loan features a redraw facility, you may be able to redraw any extra funds that you have been paying towards your home loan, to fund your home renovations project.
You can access the extra funds that you put in to pay off your home loan faster, over and above the minimum monthly payments. While this can be convenient for spending money on your project, you may want to be aware of any fees for withdrawing these funds.
3. Personal loan
Maybe you’ve already paid off your home loan or you don’t want to go through the hassle of refinancing, personal loans can offer an easier option of a smaller amount of money more suited for projects such as repairs. You can choose from fixed or variable rate loans that are best suited to your needs.
This can offer you a sense of flexibility but may also complicate things for you because you’re taking on another form of debt. You may have to deal with different repayment plans if you’re still paying off your current home loan.
4. Building and construction loans
If you’re looking to make some big structural changes to your home, you may want to consider whether you meet the conditions for a construction loan. It is typically a sum of money offered in increments called “progress draws”. These stages may include:
- Frame and brickwork
- Lock up
- Second fix
Depending on the scale of your renovation, the funds are given in advance for each stage of construction, and interest is typically charged against each instalment drawn. Your lender may send qualified valuers to check on the construction progress against the planned stages. Preparing detailed construction plans and having a renovation budget can help your lender determine the amount to offer you.
5. Credit card
Wondering how to finance home renovations with no equity? Your best bet may be to get an interest-free or low interest credit card can offer you more flexibility to purchase items needed for your renovation. Beware that credit cards have no set repayment period and typically come with hefty interest fees. There are some credit cards come with an interest-free period where you will not be charged interest until after that period and can be an option as long as you can responsibly manage your repayments.
And finally… Don’t overcapitalise
Overcapitalisation occurs when the value of the property does not increase by the same amount you spent on renovating the property. If you plan to live in your property for a long time then spending money on a swimming pool might not bother you, but if you’re renovating to sell, plan wisely. Compare the value of similar properties in the area and budget accordingly.
So there you have it, five different home renovation financing options. If you’re interested in seeing how much equity you could access from your home visit our friends at www.lendi.com.au.
Or, if you have a home loan question? Just ask! Lendi are here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist.
*The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.