Should you renovate or buy a new home?
As a homeowner, there are various considerations to mull over when the time comes to improve your home.
From your mortgage rate to the amount of spare time you've got available, it takes some careful planning when you want to improve your living situation.
One option is to renovate your existing home - something you'll need to arrange the appropriate finance for. Alternatively, you might decide to sell and purchase a new home.
Both options come with their pros and cons, so think carefully before jumping into anything.
Ready to refinance?
If you're thinking of moving, have you considered the costs involved?
There are various one-off costs you'll need to pay if you buy a new property - such as legal fees and stamp duty. On top of this, you'll need to think realistically about what you need to spend to get a home that's more suited to your needs, as well as how much you can actually afford.
Refinancing to upgrade
If you choose to purchase a more expensive property - for instance, something with extra bedrooms and more living space - you'll need to establish the difference between your current repayments and projected repayments.
There's no point refinancing if you can't actually afford that next dream home - in which case, borrowing a lesser amount to complete renovations could be a better option.
Getting a better rate
However, refinancing may be a great option if you simply want to downsize. This doesn't mean skimping on quality - you might just be after a house or apartment that requires less maintenance or is more affordable to heat due to its size.
In this case, refinancing may be the perfect option for you. The Australian Securities and Investments Commission recommends carefully working out how much it will really cost you to complete a mortgage refinance.
For example, you might have to pay a break fee if you're switching from a fixed-rate loan. Work out the costs you'll incur as well as how much you could potentially save.
Weighing up the options
If you've found the ideal new home - whether you're upgrading or downsizing - and it's within your budget, buying is likely the best option for you.
While you'll likely have to make the odd trade-off, if the home is right on the whole, this may be a preferable option to renovating.
However, if you can't sell your existing home after buying a new one, you could get stuck in a sticky financial situation.
If you don't want to go through the selling and buying process, consider renovating.
Completing home renovations is a great option if you want to add specific, unique touches to your home. You may require building consents, depending on the kind of work you're going to do, so factor such costs into the total renovation cost along with expert design plans that adhere to local bylaws.
If you don't have enough in your own pocket, you may consider a home equity loan to finance renovations.
As you pay off the principal on your mortgage, your home equity increases. You can access this equity to complete renovations, however you may be limited in the amount you can borrow.
Another option is to take out a construction loan or a line of credit. With various options available from lenders, it's important to thoroughly consider the approach you could take. A line of credit might not be the best option if you could be impulsive with money that's sitting in the bank.
It's worth taking the time to mull over your financial situation to establish what's going to work for you - whether it's moving houses or renovating.
Once you've organised your finances, you're free to start thinking about that perfect home or the clean lines of a newly-renovated, flash kitchen.