Dreaming about renovating? Home improvements are a great way to transform your living space, increase property value and improve your lifestyle. However, before you start knocking down walls, it’s a good idea to get your home improvement financing in place.
Whether you’re planning a major structural addition or a simple kitchen renovation, understanding your home improvement loan options can save you time, stress and money. Let’s explore the top three ways to finance home renovations in Australia.
Take out a Home Equity Loan
Home equity is the difference between the market value of your home and how much you owe on your loan. So, if you’re a homeowner with substantial equity built up, a home equity loan could be a great way to get the lump sum you need for your renovations.
With a home equity loan, the money is secured against your property. It’s ideal for larger renovation projects, as it generally offers lower interest rates compared to other funding options like a credit card or an unsecured personal loan.
As part of the loan process, you’ll be required to get a property valuation done to help determine how much equity you have – this should be organised by your lender as part of the application. They will then look at your loan to value ratio (LVR) to ensure that you have enough equity to secure the loan.
When you apply for a home equity loan, lenders will consider your income, expenses, credit history, and borrowing capacity just as they would when you are qualifying for a standard home loan.
Find out more about what accessing the equity in your home can mean for you.
Refinance your mortgage
Refinancing is replacing your existing mortgage with a new one. In most cases, people choose to refinance to get a better rate or access to better features. However, if your home’s value has increased, you may be able to refinance to renovate with a larger loan size and use the extra funds for home improvements.
When you choose refinancing for home upgrades, the loan approval will again depend on income, equity and the value of your property. You should also take into consideration any break or exit fees on your current loan before you apply. To find out if refinancing for home improvements is the option for you, have a chat with the team at Homestar Finance.
Apply for a construction loan
A construction loan is a form of home loan designed specifically for major building works including large-scale renovations or extensions. Unlike a home loan, though, it’s drawn down in phases. So instead of receiving the full loan amount upfront, funds are released as each phase of your renovation is completed – such as demolition, framing or roofing.
The construction loan process is more complex than applying for a regular home loan. You may need to provide your lender with things like your property’s floor plans and which materials you intend to use, so that an appraiser can take this into account.
On the flipside, with a construction loan you are only paying interest on the funds you have drawn down.
Check out Homestar’s construction loan options or get in touch with the friendly team today to discuss whether a construction loan could be the right choice to help you fund your renovation.
Other options for home improvement financing
Personal loan
This could be a quick and easy way to access funds for smaller renovations, DIY projects and cosmetic upgrades. These loans are typically unsecured and available with relatively fast turnaround times from banks and online lenders.
The interest rates on a personal loan can be quite a bit higher than the various secured loan options, and terms are shorter meaning repayments could also be higher.
Mortgage redraw facility
For homeowners who have paid extra into their mortgage, a redraw facility can be a fast and convenient way to access that money again to fund renovations without needing a new loan.
Be aware that not all home loans offer a redraw facility plus you can only redraw the extra you’ve paid, and if you do redraw funds your minimum repayments could actually increase.
Home renovations can be exciting, but it’s important to remember to consider all your options when it comes to financing your home improvement. The option that’s right for you will depend on the size and type of your project, how much equity you have and your current financial situation.
Before committing to a home improvement financing option, speak to the Loan Specialist Team at Homestar finance on 1300 911 678 about your renovation goals. They can talk you through the costs, risks and benefits of each option, and help you decide on an option that works for you.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
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