Home renovation loans – Turn your house into hot property
Renovating your home can be exciting. When done right, these projects bolster your property’s value while increasing enjoyment of the living space for you or your tenants. But all those architectural nips, tucks, and alterations tend to add up cost-wise.
Whether you’re doing a professional and elaborate overhaul or tackling a few DIY touch-ups, you may need to look into financing options. Here’s what to know when it comes to home renovation loans in Australia.
How can a home renovation loan work for you?
Renovation projects are all in a day’s work for property owners, and getting a home improvement loan helps keep the ball rolling. After all, it’s not always possible to have that kind of cash lying around or to sacrifice a big chunk of your cash flow.
When you borrow funds from an Australian lender, the appeal stems from the renovate now, pay later arrangement. Because you receive a lump sum that you repay over time, you can upgrade faster while giving your budget time to catch up.
Generally, loan amounts come up to $100,000, while loan terms go as far as 7 or 10 years. Once you receive the funds, you can use them for most projects, including:
- Bathroom and kitchen remodels
- Whole house renovations
- Home extensions
- Home repairs
- Swimming pool installations
- Landscaping
- Buying appliances and furniture
What are your finance options for home improvements?
Before you bring out your power tools or contract the local tradesmen, consider the following home renovation loan options to see what works for you:
Personal loans
A personal loan is an extremely versatile product with flexible uses. Besides paying for your wedding, holiday, or car, it can also cover home improvements. A majority of personal loans are unsecured, meaning you won’t have to attach an asset to the deal.
However, some personal loans are secured, in which case you’ll need to offer collateral or security in the form of your house, car, or other valuable assets. This brings down the lender’s risk, enabling you to borrow more funds and enjoy lower interest rates than with unsecured personal loans.
Mortgage finance
If you already have a mortgage, there are several finance avenues open to you. Firstly, your home loan may already have the following features attached:
- Offset account. This acts like a regular transactional bank account, but it’s linked to your mortgage. Any savings you deposit in there will offset your home loan balance, thereby reducing the payable interest. Some lenders let you access funds in this offset account under certain conditions.
- Redraw facility. You can make extra repayments outside of your existing payment schedule. Once your projects kick-off, you can pay for them by accessing these additional funds.
- Home loan top ups. Some Aussie lenders also allow you to top up your home loan depending on how much equity you hold on your home and your ability to pay off your loan.
However, keep in mind that using any of these features increases the interest payable. If your loan does not have any of these features, you could refinance or remortgage with a different lender or one you’re currently with.
Provided you hold enough equity on your home, potential benefits include a lower rate, better features, and a larger loan size. Lastly, you can also opt for a line of credit home loan, which you can draw on whenever there’s a need.
Construction loans
Construction loans are handy for extensive renovations such as room additions or whole house renovations. They’re designed to cover your renovation expenses on a per-invoice basis. Although construction loans tend to come with higher interests, they have an initial interest-only period, making loan repayments more affordable.
Green loans
You can avail a green personal loan if your renovation projects center on energy-efficient and sustainable makeovers. Such green projects include solar and LED light installations as well as replacing your heating and cooling system with ones that have better energy-star ratings. Because of their eco-friendly effects, green loans generally have lower rates, discounts, and better terms. Other financial incentives for homes with smaller carbon footprints include cheaper energy bills and an increase in your property’s value.
Other finance options
For small-scale renovations and minor expenses, you could consider a credit card. Due to high interest rates, borrowers are usually warned away, but if you get a credit card with an initial interest-free period, your loan costs can pan out well.
Be sure to repay everything while the promotion still applies to avoid steep charges. Alternatively, you could turn to an overdraft, though these also have higher rates and fees. Another viable option involves searching for grants available to eligible renovators in your city.
What’s the best way to compare home renovation loans?
When it comes to comparing home improvement loans, it pays to treat it like a mini-project. That’s because by doing your due diligence and putting in some work, you’re more likely to find an option that fits your bill. Some features to consider include:
- Interest rates. This is a major borrowing cost, so a low rate goes a long way towards ensuring your renovation stays affordable. Interest rates are split into fixed and variable types. Fixed rate loans guarantee unfluctuating repayments throughout your loan term, while variable rate loans come with repayment adjustments. Each option has its pros and cons, and your choice is typically based on whether you’re looking for potential savings (variable) or budget stability and peace of mind.
- Fees and charges. Application fees, establishment fees, monthly fees, and late payment fees are all part of the standard package. Make sure you’ve got them all figured out when estimating your loan’s total costs. Also, watch out for other non-standard fees like redraw fees that you may have to pay if you use the facility.
- Loan restrictions. This depends on the type of loan and the lender’s terms. Factors to consider include whether you can use the funds for a renovation, how much you can borrow, and for how long.
- Flexibility. Making extra repayments ensures you can wipe off your debt quickly and save on borrowing costs. This benefit is usually enhanced if there are no extra repayment fees involved. Additionally, look into repayment schedules and options. Start by choosing a repayment frequency that suits your cash flow from the weekly, fortnightly, and monthly options available. Then pick a comfortable repayment amount for your budget. Our home renovation loan calculator at the top of the page is handy for this purpose.
Will renovations guarantee a boost in your home’s value?
Renovations are primarily seen as a fashionable move that’ll tip the scales in your favour on the home value market. But this isn’t always cut and dried since some refurbs can knock off some value from your home. If you’re planning to rent your property or sell it in the future, it’s best to shy away from these “improvements,”
- Shoddy DIY jobs – it’s always best to call a contractor for work that requires a professional hand.
- Wall knock-downs – these lessen the number of rooms in your home, which generally correlates to a lower property value.
- Unapproved renovations – building code violations may affect your insurance coverage and inhibit your ability to sell.
- Unusual colours and fittings – these may not appeal to most people’s taste or style.
- Poor quality materials – cheap material generally won’t stand the test of time, and renovations may end up costing more in the long run.
On the other hand, kitchen and bathroom renovations tend to be the most popular way to boost your property’s value. This also applies to energy-efficient additions and room additions.
How to apply for a home renovation loan
Once you have compared home renovation finance options in the comparison table above and made your choice, click “Go to Site” to access the lender’s website. You’ll then have to fill out an application form with your personal, contact, financial, employment, and contact details.
Generally, Australian lending criteria states that you must be at least 18 years old and an Australian citizen/permanent resident to qualify. On top of that, you need a good or excellent credit score plus a clean credit history. Here’s a shortlist of documents and other details you’ll likely have to submit before approval:
- Identification such as a valid driver’s licence or passport
- Proof of income in the form of payslips and bank statements
- Details about your other assets, liabilities, and overall financial situation
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