To assist you in the process, we’ve listed several ways you can fund the renovations of your dream house:
1. Equity Release / Top Up Home Loan
This is the most common method to borrow money for home renovations, where you borrow against the current value of your home before any value-adding renovations. In most cases it allows you to obtain the funds upfront and allowing you to borrow up to 80% of its value if you own it outright.
You need to be aware that the costs of renovations may be higher than the equity you have available, meaning that if you exhaust your funds mid-construction you may have an issue obtaining extra funds to complete the works.
2. Construction Loan
This is a good option if you plan on completely transforming your home with a major makeover. This option allows you to spread the cost over a long period of time and could possibly borrow up to 90% of the end value of your home.
With a construction loan, the lender will assess the value of your home after the renovations based on the building plans and you can typically borrow against the value in staggered amounts over a period of time. This is called ‘Progress Payments’ and is linked to a fixed price building contract from your builder.
3. Line of Credit
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.
This product feature is great only if managed well as you need to make sure you can make repayments on the line of credit that will reduce the principle.
The Government’s HomeBuilder package is designed to assist the residential construction market by encouraging the commencement of new home builds and renovations. Income and other conditions apply and this grants program is active until 31 December 2020. For more information visit the Treasury website.