A guide to your renovation finance options
Whether your renovations are relatively minor – like a new kitchen or bathroom, or major – like a second storey addition or ground floor extension, the chances are that you’ll need to consider how you’ll be financing it.
If you’ve got the money in the bank or under the bed, then lucky you! But for most of us, home renovations will involve external finance and so it makes good sense to chat with your lender before your plans get too set in stone.
Here are some of the most common ways to finance a renovation project:
Refinance your current mortgage
This allows you to absorb the cost of the work over a longer period of time. This gives you the advantage of borrowing at the current home loan’s rate, which is often more competitive than standard loan rates.
Potentially, you could borrow up to 90 per cent of the value of your home, minus the outstanding balance of your existing mortgage but taking this option may necessitate mortgage insurance. This can be paid in full or again, rolled into your current mortgage. If you don’t have much equity in your home, this is probably not the best option.
Secured lines of credit and home equity loans
These allow you to utilise the equity already established in your property. These types of loans typically cost nothing to set up and are available at better interest rates but you’re still liable for the requisite legal and appraisal fees.
A personal loan offers you access to a certain amount of money at a fixed or variable interest rate, over an agreed period of time; usually between 1 and 5 years. Your access to this line of credit expires once you have paid off your loan. Keep in mind that if you find you need more funds to complete your project, you’ll need to apply for approval all over again.
Personal line of credit
Once you’ve been approved for this type of finance, you have access to a revolving line of credit that can be utilised at any time, up to your approved limit. You receive an itemised statement each month that enables you to keep track of your budget, whilst only paying interest on the funds you’ve used.
As long as you keep making regular payments off your balance, you can re-borrow the unused funds at a later time, without reapplying for approval, making this option a popular choice.
Need some help with financing?
Addbuild Additions have access to experienced financial brokers who can help with assessing your financing needs. Contact us to find out more.