How to fund a renovation
Considering transforming your home from ‘blah’ to ‘brilliant’, but lacking the funds to support your major makeover? Never fear, we’ve rounded up a few different home renovation loans to help you turn your dream into a reality.
Whether you want to make a few finishing touches to your home with the help of a paint job or completely turn your home into something magical, we’ve got an option to suit your needs.
1. Home equity loan
This is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations. You can borrow up to 90% of the current value, however if it’s more than 80% Lenders Mortgage Insurance will likely apply.
2. Construction loan
This is similar to a home equity loan, except the lender will take into account the final value of your home after the renovation. You won’t be given the full loan amount upfront, but in progressive payments over a period of time in line with your construction contract.
3. Line of credit
This may be ideal for ongoing or long-term renovations. When you apply, you can establish a revolving credit line that you can access whenever you want up to your approved limit. You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying.
4. Personal loan
If you’re only making minor renovations – personal loans are usually capped at around $30,000 – this might be suitable, but interest rates on personal loans are higher than on home equity loans.
5. Credit cards
This option is only if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very small project that extra interest might actually total less than loan establishment fees.
One thing you must do
Think about how you spend the money on the renovation. Try to obtain the greatest increase in your home’s value for the money you spend on the renovation.
Our network of Brokers and Advisers are here to help you find the most effective way to fund your renovations. So before you start, come and have a chat – we’d love to help make your renovation a reality.
Source: MFAA 2017