Last Updated on Apr 8, 2020 by James W
Acquiring funds for your renovation in advance will help you know how much you’ll need to spend, so you can stick to your desired budget. It can also let you complete the renovation faster since you won’t need to stop its progress until you can afford to continue.
There are a couple of ways available for you to fund your renovation project based on its size and your chosen budget.
Use your own savings. If you are disciplined enough to have stashed cash of your own, then consider using it to pay for the renovations. Cash, as you know is the best option so you can avoid paying interest or amassing debt. In any case, renovations aren’t cheap, even a complete bathroom makeover can cost up to $20,000 so it can take years of saving just to turn your dream into reality. Realistically, a saved money can only cover smaller projects like fitting a fly screen door or a paint job.
Utilize your home’s equity. If you’re planning a big scale renovation, then you can also tap into the loan of your property to finance the project. Taking out a home equity loan is the most typical method Australians use when funding their home renovations.
Equity is the difference between the bank’s valuation of your house and the amount that you owe on your mortgage. For example, if your home’s value is $700,000 and your mortgage is $450,000, you will have a $250,000 equity in it. The bank won’t loan you the full amount, however, you may be able to borrow up to 80% of your home’s value. If you have enough equity built up in your home loan, you can use it to finance those much-needed renovations.
Low-interest credit card. With all the negative connotations of credit cards, you may not have believed what you just read. Still, a low-interest credit card is a good option to consider when funding small home renovations. Take note that this is for minor or inexpensive DIY projects. These card types usually have interest rates of 14% per annum or less with many providers offering up to 55 days interest-free. It’s important to pay all balances in full and on time monthly to avoid interest and penalties.
Get a construction loan. A construction loan can jumpstart your home improvement project whether it’s small extension or a complete knock-down rebuild. This loan allows you to draw funds from the loan gradually as your building invoices arrive. This can save you money, as you only need to pay interest on the progress payments until the loan is fully acquired.
Refinance your mortgage. Refinancing your mortgage with a lower interest rate lets you decrease your monthly repayments, saving yourself money that you can use for renovations. Review your current home loan and find out if there’s a more competitive deal on the market.
Acquire a personal loan. A personal loan is a good option if you’re doing a small renovation and using a variable rate loan you can pay additional to help pay off your loan faster with no penalty. Personal loans usually have a lower interest rate compared to credit cards and you don’t need to provide collateral if you take an unsecured loan.
That’s it! Now that you know your options when opting to get funding for your home renovation, you can check out the latest home loan interest rates and inquire directly regarding your needs to your nearest bank.
Don’t hesitate to consult with a property expert to help you assess your situation and find out the best outcome for you.