Given how much time we’ve all spent at home over the past year, it’s no wonder the country is in the grip of a renovation boom, with Australian Bureau of Statistics data showing households carried out a record $2.78 billion of renovations over the March 2021 quarter.
But while renovations can increase your property’s value, they usually don’t come cheap. So how can you get the funds you need?
- Tap into your home’s equity
If you’ve been diligently making your repayments, there’s a good chance you’ll have built equity in your home.
Equity is the difference between the current value of your home and the amount you owe on your loan. For example, if your property is worth $800,000 and your mortgage is $450,000 then you have $350,000 equity in your home ($800,000 – $450,000 = $350,000)
Depending on your financial situation, you might be able to tap into this equity to finance your project using a home equity loan.
However, you won’t be able to borrow the full value of your equity as lenders want you to have some skin in the game – usually, at least 20%. Less than this, and you’ll likely have to pay lenders’ mortgage insurance – a one-off insurance premium to protect the lender should you subsequently default on the loan.
- Refinance your mortgage
Want to pull out equity while scoring yourself a better deal in the process? Switching home loans could be the way to go – though, keep in mind, refinancing comes with costs attached such as possible application fees, valuation fees and break fees.
- Take out a construction loan
As the name suggests, construction loans are suitable for large-scale renovations involving structural work such as extensions or knock-down rebuilds. They work in much the same way as home equity loans, except the amount is based on the estimated final value of your property post-renovation.
For example, if your renovations will add $100,000 in value to your $800,000 property, then your equity is calculated by subtracting your current mortgage from $900,000. Typically, you won’t be given the full loan upfront, but rather receive it staggered in stages as construction progresses.
- Apply for a personal loan
If you’re making only minor renovations, a personal loan might be more suited to your needs. And while interest rates can vary depending on the lender and your financial circumstances, it’s typically a cheaper way of financing a reno project than putting it on your credit card. That said, interest rates on personal loans are higher than on home equity loans.
Want to spruce up your property but lacking funds? Get the expert advice you need by working with Newy Finance. Contact us by calling Jon Jones on 0410 699 969.