Tips for Funding Your Renovation

Tips for funding your renovation
You are both earning good money, you love your neighbours, and you don’t want to move. Unfortunately, you are embarrassed every time you have friends over as your house doesn’t work the way it’s meant to. The windows jam, the doors don’t close properly and the bathroom and kitchen need to be brought into this decade. Finally, you have made the decision to love the house you’re in and have it undergo a major renovation!

The next step is to identify options for financing the renovations and here’s how:

Speak to your local mortgage broker
Your mortgage broker can assess your situation and provide you with numerous options on the most appropriate way to fund your renovations. It’s best to work out the maximum you are able to borrow with your existing lender and see if the monthly repayments are able to be comfortably incorporated into your budget.

Unlock your equity
If you’ve been in your home for a while, chances are that you have considerable equity, both as a result of paying off your initial home loan and from rising property values. Equity is the amount of your home that you own; that is, the value of your property, less the outstanding loan amount. For example, if your property is valued at $500,000 and you owe $300,000 on your loan, your equity is $200,000 ($500,000 – $300,000 = $200,000). As long as you can meet the repayments and the renovations are likely to add value to your property, most lenders should be willing to lend you a percentage of your equity for home renovations. Depending on your situation, this equity could be accessed through redrawing, increasing your existing loan or refinancing your loan entirely.

Building loans
Most home loan providers will offer a product called a building or construction loan, which act as a line of credit that you can draw on as renovation costs become due. The advantage of these are that you aren’t making repayments on the full value of the loan at once, but only on the progressive loan balance, which will change over time. That means you can start to pay off the first invoice before the next ones come in, saving you money overall.

Personal loans
Especially where a renovation is small – perhaps you just want to update your kitchen without any building works – you might consider a personal loan. As personal loans are generally not secured against your property, the interest rates are usually higher. However, as the term of the loan is much shorter, you should pay less interest over time.

Work out your budget
Once you know how much money you can access comfortably, speak to an architect about the desired transformation and get an idea of costs for plans, permits and drawings. Before you finalise your plans, you can arrange for a building inspector to help identify any structural work that might be needed. Major work could significantly increase your budget, so it may be worthwhile to talk directly to a professional to get a more tailored understanding of how much you’re up for. Architects and Master Builders are usually happy to provide a quote, so think about getting more than one quote to give you an idea of the building cost range. In addition, add a percentage for contingencies: most experts recommend that you add another 10% to 20% to the overall budget to cover the inevitable delays and complications that arise throughout the renovation process. Each option has advantages, so it’s worth spending some time considering them carefully. If you do not know of a reputable mortgage broker, Bayline Constructions can refer you to experts in mortgage construction loans.

Disclaimer: This article is general in nature and not to be considered specific to your situation.