Are you getting motivated by this season of the Block? Do you want to jump on the renovation band wagon but have no idea how you can afford it? Here's a couple of ways to finance your dream renovation and convert your old pad into something inspired.
The term equity gets thrown around a bit when talking about property but it effectively represents the difference between the value of your home and your home loan balance. If you've had your property for a few years and have been paying down the balance or property prices in your area have increased then there's a fair chance that this could be an easy way to fund your renovation. When it comes to drawing on equity for renovating it is important to understand that your bank will place certain rules on how much you can take out. The most liberal lender that we deal with will allow you to draw out up to 95% of the property value. On a $500,000 property with a loan balance of $300,000 this would mean that you could cash out up to $175,000. With that said, for most of us there will be implications for Lenders Mortgage Insurance (LMI) when borrowing over 80% of the property value that needs to be factored in.
You would typically find the need for a construction loan on larger scale renovations that can't be funded through use of equity or when accessing that equity you would likely incur LMI. The requirements for this type of lending are more involved for the applicant because you will need to consult with builders upfront to obtain building contracts as well as approaching your local council for necessary approvals in order for the application to be accepted by the bank.
For those of us who don't equity to access in our property and have smaller renovation goals, a personal loan could be the option for you. The process is typically less cumbersome than the above options with no requirements for council approved plans or a building contracts to obtain approval. There are also some really cost effective options in the market with interest rates below 5% for eligible customers. You do need to account for the personal loan and existing home loan repayments but might find that at the end of the renovation you have added enough value to your property to allow you to cost effectively consolidate the personal loan debt into your existing home loan. This is often a choice for new property owners who want to make some minor tweaks.
For more information on the above strategies feel free to contact us.
Your full financial situation would need to be reviewed prior to acceptance of any offer or product.
Information as at 12/09/2017