Finding ways to finance your home renovation?
It’s a project we’ve all dreamed of: taking an outdated house and turning it into the home of our dreams.
But before you start home repairs, tearing down walls and clearing out closets, there’s one big factor to consider — financing.
There are plenty of resources available for Australian homeowners looking for loans for home improvement. Read on to explore what renovation loan options may be open to you
What is a renovation loan?
A renovation loan in Australia is a type of loan that allows borrowers to finance renovations and home repairs. It can be used for anything from minor cosmetic upgrades to major structural changes.
A renovation loan often has a low interest rate, making it an attractive option for those looking to renovate their home without going over budget. Generally, these loans are flexible and can be tailored to meet the borrower’s unique needs.
Different types of home renovation loans
Below are the most common loans to renovate a house.
1. Use equity to renovate
Using your equity to finance a home renovation in Australia is a great way to save money.
But what is equity? Equity is the difference between your property’s market value and the amount you still owe on it. By using the equity in your property, you can access funds for home renovations without taking out an additional loan or increasing the size of your existing mortgage.
It’s important to note that before taking this route it’s worthwhile examining all available options as fees and other costs associated with equity loans may be higher than those associated with more traditional loans. Additionally, depending on the specific loan agreement, you may need to pay back any borrowed funds within a certain period of time, making it important to determine if this type of financing fits into your budget before committing to anything.
2. Refinance for renovations
Refinancing your mortgage allows you to access funds for renovations without taking out an additional loan or increasing the size of your existing mortgage.
It’s important to note that refinancing home loans may require you to pay more over time than other options such as equity loans. So, it’s essential that you research all available options or consult a mortgage broker before committing to anything.
Additionally, you should take into account any fees and taxes associated with refinancing depending on the specific loan agreement. Ultimately, refinancing is a great way of funding your renovation project in Australia, but it pays to do your research first.
3. Construction loan for renovations
A construction loan for renovation is a loan taken out by a borrower as a means for financing home renovations or repairs.
The main difference between a standard mortgage and a construction loan is that with a standard mortgage, the property being purchased serves as security for the loan. With a construction loan, the property being built or renovated serves as security for the loan. Rates for construction loans are charged higher than those of regular mortgages.
Construction loans are also typically shorter-term loans than regular mortgages, because the lender wants to make sure that they’re repaid before the property is completed and sold.
How do construction loans work? When you take out a construction loan, the lender will typically provide you with the money in several stages as the construction progresses. This method is known as progress payments or progressive drawdown.
A construction loan can be a great option for those buying a fixer-upper that needs some repairs or renovations before it’s ready to live in. Another use for a construction loan is to finance commercial properties.
4. Personal loans for renovations
Taking out personal loans for renovation is an attractive option if you don’t want to use the equity from your property or refinance your existing mortgage.
Using a personal loan to renovate home may require you to compare different loan rates and terms. This is so that you get the best deal for your needs, as well as assess any fees and taxes associated with personal loans depending on the specific agreement.
Personal loans generally offer lower interest rates than credit cards, meaning you’ll pay less over time. They also often have longer payment terms than other options such as home equity lines of credit, meaning you can spread the cost out over many months or years.
However, it’s important to understand that any new loan could affect your credit score, so it pays to be aware of this before taking out a personal loan.
5. Offset or redraw
Using an offset account or redraw to finance home renovation can be a good idea in some situations, but it’s important to carefully consider all the pros and cons before making a decision.
An offset account is a type of transaction account that is linked to your mortgage. By depositing money into the offset account, you can reduce the amount of interest charged on your loan. This means that any money saved in an offset account will effectively be earning you interest as well.
Redrawing from your mortgage is another option. This allows you to withdraw funds from your existing loan (if you have extra repayments) for other purposes such as renovations.
Both options offer advantages when it comes to financing home renovations:
On the downside,only a small amount of interest reduction may be achieved, depending on how much money is held in the offset account relative to the total loan balance. Similarly redraws can incur higher fees than taking out an additional loan or increasing your mortgage size. It’s important to check with lenders and compare different options before proceeding with any sort of funding for home improvement projects.
In addition, if substantial renovation work needs to be done over a long period of time then there are products specifically designed for financing home improvements that may provide better value for money than using an offset or redraw facility (i.e., construction loans).
6. Switching temporarily to interest-only repayments
Switching temporarily to interest-only repayments is an option many homeowners consider when financing a home renovation. This strategy can give you some financial breathing room, as for a set period of time you’ll only need to pay the interest on your loan instead of both the principal and the interest.
However, this doesn’t mean it’s always a good idea. Interest-only payments provide temporary relief, but they’re not a long-term solution. When the interest-only period ends, your payments will likely increase significantly and could be hard to manage. Additionally, you might end up paying more in total because you’re not making any progress toward paying down the principal balance of your loan during that period of time.
That said, if used wisely and with caution, going on an interest-only repayment plan can be beneficial when renovating your home. Before exploring this option further, make sure to speak with your lender or mortgage broker.
7. Tap into your savings
Dipping into your savings to finance a home renovation can be a tempting option, especially if you have money saved up.
However, when it comes to home renovations, there are a few considerations you should take into account before making the decision.
Pros:
Cons:
Let Stryve Finance help you get a
renovation home loan
Borrowing money for renovations has never been easier with Stryve Finance! We offer a wide range of lending products across a panel of over 30 banks. We negotiate between various lenders on your behalf to obtain competitive rates, fees and terms.
FAQs
Can you borrow extra money on your mortgage for renovations?
Yes.There are a few ways to do this, and one of them is through a home loan top up. You can borrow additional funds on your existing mortgage without taking out a separate loan. It also has a lower interest rate compared with some other loan types,e.g., a personal loan.
Who can qualify for a renovation loan?
In order to qualify for loans to renovate a house, you need to meet certain criteria set by the lender. Generally speaking, this includes having good credit, sufficient income and money saved up for a deposit. It’s also important that your planned renovations are in line with the value of your property and don’t exceed it too much, as this could affect how much you can borrow from your lender.
How do I know how much I can borrow?
The amount you can borrow depends on several factors including but not limited to: how much equity is available in your home; whether you have enough savings available; what other debts (if any) you currently have; and finally your credit score and financial history. A qualified mortgage broker or financial advisor should be able to advise what size loan would suit your individual situation best. They can also help secure competitive interest rates from different lenders/banks.
What documents do I need in order to apply for loans for home renovation?
In most cases, lenders will require proof that you own the property (i.e., title deeds) along with recent bank statements and evidence that supports your income level (e.g., payslips). Depending on your individual situation, lenders may also want to see additional documents such as tax returns or other evidence detailing any assets or debts in addition to those outlined in your application form.
How long does it take to receive funding from a home renovation loan?
Once all documents have been submitted and approved by the lender, it usually takes around 2-6 weeks before funds are available depending on how quickly paperwork is processed by both parties involved (the lender and borrower). It’s important to be organised during this time frame so that everything runs smoothly without delays.
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