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Renovating My Home

How can I finance my renovation?

Renovation Loans Australia

So, you’ve decided that your 1970’s home isn’t so groovy anymore. You dream of Sunday morning breakfasts in a beautiful kitchen that’s been custom built just for you – no more juggling space to open the dishwasher and cupboard at the same time, and no more squeezing past your partner when you cook together. Not to mention those outdated countertops you’ve always hated… It’s time to renovate.

Whatever the scale of your renovation, chances are you’ll need to finance it. Sorting out your funding in advance will help you to determine how much to spend so that you can stick to your budget. It will also speed up your renovation because you won’t have to halt progress while you find the finances to keep going.

Whether your renovation plans include a shiny new bathroom, a modern extension or a good old fashioned DIY project, we’ll help you secure the funding to make it happen.

Here are some of the savviest ways you can finance your renovation

A personal loan is a simple and cost-effective way to fund relatively small renovations.

Once your loan application has been approved, the lender will send a lump sum to your account and just like that, you can get started on your renovation.

There are generally two types of personal loans:

  • A secured loan requires you to offer an asset, such as your car, as security for the loaned amount. As this involves less financial risk for the lender, this loan type usually has a lower interest rate than an unsecured loan.
  • An unsecured loan doesn’t require any security, so it tends to be easier and quicker to set up. However, this also means that the maximum loan amount is lower than that of a secured loan so it’s better suited to cheaper renovations.

The convenience of this little piece of plastic is hard to beat, particularly for small alterations around the house and cheaper DIY projects.
You should only opt for this method if you are going to pay off the balance in gradual, small instalments because right now, the average interest rate on credit card is over 17%. We recoiled too, but don’t let this put you off too soon.

The majority of institutions can approve credit card applications on the spot in person or at the click of a button online, so it’s a quick, easy way to fund your renovation. And when you want to access your finances, it’s as simple as taking the card out of your wallet.

One thing we can’t stress enough is the importance of paying off your balance in full and on time. Otherwise, you’ll face some substantial penalties and interest, meaning you could end up spending a hefty sum for only a modest renovation.

Equity refers to the difference between your property’s market value and what you still owe on your mortgage. For instance, if your house is worth $500,000 and your outstanding mortgage balance is $350,000, then you have $150,000 in home equity.

Although the bank will not loan you the entire amount, they will let you borrow up to 80% of your home’s value. That’s why this is a great option for financing larger renovations.

Home equity loans usually have significantly lower interest rates than personal loans or credit cards. But before you jump at this option, note that it will increase your mortgage, making your repayments greater and longer to pay off.

If you’ve gotten into the healthy habit of making mortgage repayments over the minimum required, this excess money will accumulate. With a redraw facility, you can dip into this build up of additional payments to fund your renovation.

Of course, redrawing from your mortgage for home improvements depends on how much money is available to redraw. Additionally, not every home loan has a redraw option, which is usually only available on variable rate loans.

This method tends to be less expensive than going down the credit card or personal loan route, as less interest is charged on your home loan. However, using a redraw facility will increase your loan’s balance, meaning the interest you are charged will also rise.

If you’ve got home equity, you can refinance to a line of credit loan.

This type of finance allows you to access funds as you need them, so you can pay for materials or tradies as your renovation progresses. What’s more, interest is only charged on the balance owed, instead of the total loan amount.

But proceed with caution: There are no regular repayments, so you need to keep a close eye on your balance and make sure it doesn’t exceed the credit limit.

If you’re ready to build your dream home, a construction loan could be the way to go. This loan is based on the post-renovation value of your house.

Whether it’s a modest extension or a complete bulldoze and rebuild, a construction loan lets you draw funds gradually as your invoices come in.

And because you’re only paying interest on the progress payments made until the loan is completely drawn, you’ll have some extra cash handy while construction is underway. This is a big plus when dealing with any unforeseen issues that pop up during your renovation – a burst pipe won’t pay to fix itself.

Regardless of whether you’re planning a renovation, it’s a good idea to review your existing home loan every couple of years in case you can switch to a more competitive offer.

If you refinance your home loan with a lower interest rate, your repayments can be reduced. This could end up saving you thousands of dollars, which could go straight towards your home’s makeover.

Let’s be honest, cash is always the best option because it means no bank fees, no loans and no interest rates. If you’ve had the self-control to build your savings over the years, then you could use this money to pay for your renovation.

However, renovations are usually quite pricey, so it could take decades to stash away enough cash to transform your house into your dream home. This method is best suited to smaller renovations, such as a fresh paint job or a fancy new front door.

At the end of the day, the right loan for you depends on the size of your renovation and the amount of equity your property holds.

Our credit and mortgage advisors will take the time to explore your options and secure the most suitable loan for you. We promise to get you financed fast so that your renovation plans don’t stop before they’ve started.