You are both earning good money, you love your neighbours, and you don’t want to move. Unfortunately, you are embarrassed every time you have friends over as your house doesn’t work the way it’s meant to. The windows jam, the doors don’t close properly, and the bathroom and kitchen need to be brought into this decade. Finally, you have made the decision to love the house you’re in and have it undergo a major renovation! The next step is to identify options for financing the renovations and here’s how:
SPEAK TO YOUR MORTGAGE BROKER
Your mortgage broker can assess your situation and provide you with numerous options on the most appropriate way to fund your renovations. It’s best to work out the maximum you can borrow and see if the monthly repayments are able to be comfortably incorporated into your budget.
UNLOCK YOUR EQUITY
If you’ve been in your home for a while, chances are that you have considerable equity, both because of paying off your initial home loan and from rising property values.
Equity is the amount of your home that you own; that is, the value of your property, less the outstanding loan amount. For example, if your property is valued at $500,000 and you owe $300,000 on your loan, your equity is $200,000 ($500,000 – $300,000 = $200,000).
As long as you can meet the repayments and the renovations are likely to add value to your property, most lenders should be willing to lend you a percentage of your equity for home renovations.
Most home loan providers will offer a product called a building or construction loan, which act as a line of credit that you can draw on as renovation costs become due. The advantage of these are that you aren’t making repayments on the full value of the loan at once, but only on the progressive loan balance, which will change over time. That means you can start to pay off the first invoice before the next ones come in, saving you money overall.
It’s also worth checking with your home loan provider whether the loan is ‘interest only’ for an initial period. If it is, this will also help to keep your costs down during the crucial building period.
Disclaimer: This article is general in nature and not to be considered specific to your situation