Are you considering renovating your home or investment property? A well-considered and researched renovation plan can increase the value of your home or investment property. It may be that your well-worn bathroom or kitchen needs a revamp, or that the front yard need to be completely re-landscaped.
The difficulty is, what is the best way to finance your proposed renovations?
The most common method of funding a renovation is to refinance your existing home loan by increasing the total loan amount by the cost of the renovations and securing the new loan balance against the equity in your property. However, if your current loan amount is already more than 80% of the value of your property, this may not be the best solution for you.
Another option is to apply for a construction loan. This may be the solution where you don’t have enough equity to refinance your existing loan based on your current property value. A construction loan considers the value of the property post renovation. If your renovations significantly increase the value of your property, then this may be the most appropriate option for you.
If your renovations are relatively small, for instance perhaps you are just renovating a bathroom, you could consider taking out a personal loan. Personal loans are not secured against your property, and so equity is not an issue. It is important to remember though, that personal loans (especially unsecured personal loans) attract a higher rate of interest than home loans and must be paid off over a much shorter period of time (often 5 to 7 years). Therefore, you will need to consider whether you can afford the additional financial burden of the monthly personal loan repayment.
Our top tip: be careful not to spend more on your renovation than the value it will add to your property.
A good renovation will improve key features of your property to deliver the most effective increase in capital value, which in turn means that your home will be in peak condition to attract high quality buyers when it comes time to sell.
If you’re thinking about renovating and would like to know more about your finance options, get in touch with one of our brokers today to help find the most suitable pathway for you.