Have you been thinking about borrowing money for renovations? If so, you are one in five Aussies who intend to upgrade their existing home (18%).

As a nation of houseproud people, it is quite common for us to undertake a home renovation project. In fact, the Australian Bureau of Statistics figures show renovators spent a massive $12.3 billion to renovate their homes in 2021. 

There is high demand for a home renovation loan

The COVID pandemic has led to so many home loans renovation in Australia, with the majority of Australians being unable to travel during 2020 and 2021. 

All the money that would be usually spent on holidays and trips to theatres, restaurants, cafes, and workplaces (as the transition to work from home started) were pooled into household savings, which in turn were used to commit to renovation and construction projects.

Things are relatively more relaxed now  that we are past the peak of the pandemic, but people are still wanting to renovate and finding ways to finance their reno project. More and more of them are looking to get a loan for home renovation or use equity to renovate.

Using equity to renovate

You may find that you have some equity in your house after owning it for a period of time. Renovations cost money, and so unlocking equity in your home, which can increase home loans to renovate, is a viable option for you to finance your home renovation. 

How to use home equity for renovations

Let us first explain how a home equity loan works in Australia. 

Equity is the percentage of the total property value that you own. It grows in two ways:

  • paying off your mortgage and reducing your loan balance; and
  • property value starting to appreciate

If you have enough usable equity on your property (calculated as a percentage of your home value less any debt secured to your property), you could be approved for a home equity loan. A home equity loan is a type of mortgage that allows you to borrow against your home equity.

To illustrate:

Say your home is valued at $600,000. The bank can lend you 80% of that value, which amounts to $480,000. If you still owe $200,000 on your current mortgage, your usable home equity is $280,000. Talk to us if you need assistance around knowing your usable home equity.

How to get loan for home renovation

Applying for a home equity loan for home renovations is quite similar to applying for a mortgage. 

You will need to provide information on your income and employment. The lender may also conduct a property valuation as part of your application. Once your home equity loan is approved, it will be disbursed to you in two ways:

  • It will be given in one lump sum that you will begin making regular monthly payments immediately for.
  • Home Equity Line of Credit (HELOC) – a line of credit where your house is used as collateral. The loan has a variable interest rate  and starts with a draw period that generally lasts 10 years. During this time, you can draw on your line of credit as needed and make interest-only payments.The repayment period begins after the draw period ends, and you can start paying on both the principal and interest for a term.

How much is the average home renovation?

The average home renovation cost in Australia can cost between $40,000 and $300,000 or approximately $55 an hour.

The price is of course dependent on a number of factors, e.g., geographical location, conditions of the property market, your specifications, and so on.

When can home renovation start?

Australians no doubt love to renovate, but when is it right for you? It may be worth considering the following questions:

  • Do you have enough money to cover the renovation costs?
  • Are you able to access your home equity, and do you have enough of it to use?
  • Do you have a good buffer for budget blow-outs?
  • If needed, will your family have somewhere to stay while the renovations are underway?
  • How soon do you want to upgrade your home?
  • Are you willing to take the time to renovate your home for long-term gain?

For professional advice on how to use home equity to upgrade your home, or if you want a simple, fast and seamless borrowing experience, feel free to reach out to the mortgage specialists at Stryve Finance. 

We offer a wide range of lending products across a panel of over 30 banks, and can negotiate between various lenders on your behalf to obtain competitive rates, fees and terms.