Most homeowners spend months, if not years, saving up for their home renovation.
Using your hard earned savings is one of the better ways to finance a renovation, but there’s more than one way to skin a cat. If you have a big renovation project in mind, your cash savings may not be enough to cover it, in which case you’ll need to look at alternative financing options.
Here are some other popular ways to fund your home renovation.
Put simply, home equity is the value of what you currently own in your home - it’s the difference between the market value of your home and your remaining loan balance.
If you want to fund a big-scale home renovation, you can use your existing equity to top up your renovation budget by applying for a ‘Home Equity Loan’.
You may need to get a property valuation done through your lender to find out how much equity you have available in your home to use for your renovation. Your lender will also assess your current loan to value ratio (LVR) to make sure some equity is held as security for the loan.
Lenders take factors such as your income, expenses, credit history, borrowing capacity and the market value of your home into account when you apply for a home equity loan - it’s very similar to applying for a regular home loan.
Refinance your mortgage
When you refinance to renovate, you obtain extra cash which then goes towards funding your renovations. You can either refinance with your current lender or with a new lender and increase the amount you owe, to gain the renovation funds.
The upshot of refinancing your mortgage, rather than using a personal loan, to fund your renovation is that you’re likely to get a more competitive interest rate. Personal loan interest rates can be as high as 10% or 11% while many home loan interest rates are around the 2-3% mark.
Refinancing to a new lender does come with refinancing costs, but you may also be able to get a better rate and features. If you’re refinancing with loans.com.au we offer a low one-year discount variable rate of 1.99% p.a. (2.47% p.a. comparison rate).
You could also take out a construction loan to finance your renovation project.
A construction loan is a type of home loan used for doing major home renovations or for building a home. Unlike a regular home loan, a construction loan is drawn down in stages as the work progresses.
Getting a construction loan over the line with your lender works quite differently compared with a regular home loan. You need to present to your chosen lender the plans for your property like floor plans, and the kinds of materials being used, so an appraiser can go over your plan and determine how much the expenses will be once the property is completed.
The team at loans.com.au can help you determine if a construction loan is right for you. Contact us today to get your home renovation started.
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