How to finance your home renovation

As the window begins to close to access the Government’s HomeBuilder grant, there is still enough time to capitalise if you’re looking to build or substantially renovate.

Given that the requirements are high for renovators, many people might be looking to borrow, in order to fund their home renovation. There are a number of finance options you can consider and you should speak to your mortgage broker about what is the right option for you.

Using Your Equity

If you’ve owned your current home or an investment property for a period of time, then you might be able to use some of the equity that has been created, if your property has increased in value over time or if you have reduced your mortgage since your purchase.

Lenders will generally let you borrow up to 80% of the value of the home (without insuring such costs as Lenders Mortgage Insurance), which means that if you have enough equity in your home – you can access it.

Accessing spare equity is generally an easy process and one that your broker can help you with. There might be application fees attached with applying for a new loan, however, interest rates will generally be lower than other options.

Redraw

If you’ve been diligently making your repayments and have contributed more than the minimum, you might be able to use those funds to help pay for a renovation.

Many loan products have redraw facilities available to you, which means you can simply withdraw the amount of money over and above the minimum required repayments. This is usually a quick and easy process and you don’t need to apply for another loan. However, your repayments will likely be higher as your loan balance will increase if you’re going to redraw.

Line of Credit

Another option if you already own property, is to get a line of credit. A line of credit is like a large credit card, which gives you access to a certain amount of funds that you can use at your discretion.

You are normally only charged interest on the amount of money that you actually use, so this can be a flexible option. However, this flexibility also likely means that the interest rate attached to it will be higher than a standard home loan.

Personal Loan

If you don’t have any equity available to you, that doesn’t mean you are out of options. You can look to get a personal loan, which you can then in turn use to renovate.

A personal loan might work if you only need a small amount of money to fund the renovation, however, the fact that it is generally unsecured, means the interest rates will be higher.

Construction Loan

If you are looking at taking on a major structural renovation, you could look to getting a construction loan. A construction loan differs slightly to a normal home loan in that it is drawn down in progress payments as the project proceeds to pay the builder. Generally, you will need to have council-approved building plans and a fixed price building contract from a registered builder before you get started.

Interest rates on construction loans are normally higher than standard home loans, however, repayments are usually interest only and revert to a standard principal and interest loan upon completion.

*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.