Renovating your home or investment property is a fantastic way to add value. But what’s the right way to finance the renovation project you have in mind?
There are several ways to finance a renovation – the option that will work best for you depends on the size of your project, your budget, financial circumstances and your goals. Your mortgage broker is an expert when it comes to helping you choose the right loan option for any renovation – here’s an outline of some of the finance options we recommend to get your renovation dreams off the ground!
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LINE OF CREDIT
The benefit of a line of credit is that you only pay interest on the money you use. The way it works is that you apply for a line of credit against your home with an approved limit, then simply use the funds as needed.
You can pay off the balance as you go, then use the funds again later for the next stage of your renovation – much like a credit card. If you want the freedom to pay tradespeople or buy materials whenever you need to, a line of credit may be ideal, particularly if your renovations are ongoing.
A personal loan is a good option if your renovation costs are relatively small, or you plan to pay the loan off quickly. With a personal loan, you can secure the finance against an asset, such as property or term deposits, or opt for unsecured finance without collateral (this option usually has a higher interest rate). The application process is usually quicker than for a home loan and the money is deposited into your account for you to use as required.
Interest rates on personal loans are usually much higher than home loans, however we have access to competitive rates, so we can potentially help you save. Depending on how and when you plan to pay back the loan, you can choose a variable or fixed rate option. Many personal loans allow extra repayments so you can pay it off sooner and reduce the interest you’ll have to pay, so talk to us about the right one for your needs.
Construction loans are a great option for larger renovation projects that require a builder. This could include anything from a small extension to a complete knock-down and rebuild. With a construction loan, the lender will use the final value of the property post-renovation to calculate how much you can borrow. Once approved, you can draw down periodic progress payments at different stages of construction.
A construction loan offers significant benefits for larger renovation or building projects:
- You only pay interest on the money you draw down.
- The payments are interest-only during construction.
- Each stage must be inspected and completed before you can draw down the funds for the next stage. This helps to keep your builder on track.
- The loan converts to a home loan of your choice after construction is completed.
REFINANCE TO ACCESS EQUITY
When you refinance your home loan to access your equity, you end up with a sum of cash to use as needed or to finance your renovation project. Refinancing your home loan could be a good idea if you’re ahead on your loan repayments, your property’s value has increased, or you’ve paid down your home loan considerably since you took it out. (It may not be a good idea if your property has fallen in value, or your financial circumstances have changed for the worse since you purchased it.)
Refinancing may also allow you to access other useful features such as a line of credit, or a redraw facility – which could be useful if your renovations are ongoing. It’s important to remember you may not be able to access all your equity – so talk with us and we’ll help you work out your borrowing power.
WHATS RIGHT FOR YOU?
Whether you’re planning to make a few cosmetic improvements or give your property a complete overhaul, chat with us about the finance side of things. The right loan choice will depend on where you’re at financially and what you’re hoping to achieve. For example, the finance we recommend for those renovating their own home may be different from what we’d suggest for those renovating an investment property, or those flipping for profit.
If you’d like to find out more, just give us a call today.
FINANCE FOCUS | APRIL 2019
The information provided in this page is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs. You should seek independent advice from your financial adviser before making any decisions.
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS (AMAFA)
Phone: 07 3378 2056
Fax: 07 3378 2069