Confined to our (admittedly beautiful) country, and with house prices growing exponentially, improving our homes makes more sense than ever. Whether it’s a new kitchen, a swimming pool or an outdoor entertainment area, there’s no better time to begin a renovation project. But with the excitement of a refreshed living space comes the overwhelm of financing such a project – it can feel daunting to know where to begin.
Taking out an additional loan is a serious commitment and should be carefully planned. A renovation loan can assist with financing if you’re looking to remodel, repair or renovate your residential property, but like any loan, there’s a lot to consider before you commit. We’ve put together a go-to guide covering loan options, what to expect and tips to ensure the easiest process.
What is a renovation loan?
A home renovation loan helps you finance the cost of renovating, remodelling or repairing your residential property. The better your credit score, income and equity in your home, the better deal you’re likely to get, but lenders usually provide home renovation loans up to $50,000.
Interest rates are much higher than for regular home loans, typically sitting around 12% to 14%. However, you’ll only be paying these rates while your renovation is underway. You should be able to bundle your renovation and home loans together upon completion of your project.
A renovation loan is separate from your regular home loan and works similarly to a personal loan. This means there’s usually a maximum repayment period of five years. This shortened repayment period could save you thousands of dollars in interest long-term.
Questions to ask before you get started
Is your project feasible? Before you’ve committed to your loan application, make sure you’ve calculated all your costs to avoid any surprises. Your loan may cost more than you think, so it’s important to review your finances and understand exactly what you can afford. Your home size, plans and location will all factor in how much you can borrow.
What’s the purpose of your renovation? While renovating means your home is more enjoyable to live in, there’s more to it than that. Are you doing it up to sell or to create your forever-home? Getting clear before you start will help you better prioritise your budget.
Are you aware of all associated costs? Do you need consent from the council? Having an architect help with the planning? Demolition costs? As a homeowner, you’ll also be charged 15% GST on top of your quote. Be aware of all extra costs from the get-go – what may seem like an insignificant cost at first could quickly equate to thousands.
Alternative finance options to consider
Depending on your budget and specific project, we may be able to help you find an alternative option to best suit your needs.
- – If you’re needing finance quickly, a non-bank lender might be your best option. They offer an alternative to traditional banks and are often more flexible.
- – For smaller projects, a low-interest credit card may be suitable. You may be able to move this to a 0% interest transfer deal, and you’ll acquire less debt long-term.
- – If you think your budget is likely to be more than $50,000, you may want to consider funding part of it yourself. It is seldom that banks will offer a loan higher than this, and it’ll save you from taking out a larger debt.
- – Have you looked at all the banks? Lending criteria change between banks and even day-to-day, so it can be impossible for the average person to have a good grasp of all the options. Working with a mortgage broker, you can more easily compare offers from various lenders to make sure you’re getting the best deal on finance.
Renovation loans made easy
Still thinking about that dream kitchen or brand-new bathroom? The most important thing to remember is to take your time! There’s no hurry when it comes to deciding to renovate your home. Working with an expert to explore all your financing options will ensure you’re getting the best deal and an outcome that will enhance your home.
Ready to commit to your renovation? We’re here to help – contact Global Finance to start the renovation loan process and get your home refresh underway.
**These are general guidelines and are by no means a reflection of bank or lending policies