Disclaimer: This information is general in nature. Jason Windows and Home Base Design & Build Centre do not provide financial advice. If you are seeking financial advice, please contact a qualified financial adviser.
There is more than one way to finance a home renovation. Between school runs, errands and keeping the household running, you may have started imagining what your home could look like with new windows, or a bigger bathroom to make the morning rush a little easier.
Whatever the size or condition of your home, finding the money to make those changes can feel overwhelming. Whether you do not have the cash available or would rather not dip into savings, financing your renovation is worth considering.
From a fresh coat of paint to a major renovation, there are plenty of options. Here we look at where you can borrow and the main ways to finance a renovation.
Where to borrow
Your mortgage might be with one of the big four banks, but there is no reason you cannot shop around for renovation finance. Depending on your circumstances, looking beyond the major banks could be the answer.
Banks. The banking sector is competitive, and banks work hard to attract customers with appealing offers. Comparing several banks and asking for their best rate can save you thousands over the life of a loan. Let your current lender know if you have received a better offer – you may be surprised what they will offer to keep your business.
Credit unions and building societies. Like banks, credit unions and building societies are licensed to lend for home loans, personal loans and more. The main difference is that credit unions are owned by their members, so they focus on returns and products for members rather than shareholders. That does not always mean a lower rate, but it is worth getting quotes.
Other lenders. Beyond banks, credit unions and building societies, private lenders offer competitive rates and a range of lending options. Non-bank lenders often have a narrower range of products, but may lend to people who would struggle to borrow from a traditional lender, such as small business owners needing low-doc loans.
Ways to finance a renovation
The best way to finance your renovation depends on your circumstances. These are the main options.
Use the equity in your home. If you have owned your home for some years, made extra repayments or benefited from rising house prices, you may have built up equity – the difference between your home’s value and what you owe on the mortgage. Having equity does not mean you should borrow all of it. Consider the cost of borrowing and make sure you are comfortable with the new repayments.
Redraw on your current loan. If your home loan has a redraw facility, you may be able to access extra repayments you have made without applying for a new loan. Keep in mind that the interest you pay, and possibly your repayments, will increase.
Refinance your existing loan. If your loan has no redraw facility, or another lender offers a better rate, you could refinance and include your renovation costs. This might mean changing lenders or switching loan types with your current lender. Compare rates and features such as redraw facilities.
Personal loan. If you would rather not change your home loan, or cannot, a personal loan is an option. It suits smaller renovations and can be applied for once you have an estimate of the cost.
Line of credit. Some lenders offer a line of credit, which lets you access funds as you need them. You pay interest only on the amount you have used, not the full limit. Repayments are usually not fixed, so keep track of what you owe. Lenders can reduce or cancel a line of credit at any time, so it generally suits people who expect to repay quickly.
Building and construction loan. Many lenders offer construction loans that release funds in stages as work progresses, with interest charged on the amount drawn. You can often make interest-only repayments while the work is under way, leaving more cash available during the build. It can be a good way to fund a larger renovation, as long as you keep your lender informed of progress.
Credit card. For small renovations you can repay quickly, a credit card can get work started straight away. Understand the interest rate and repayment obligations first, as the cost can be far higher than other types of finance.
Whatever your situation, there is likely to be a finance option that suits your renovation. Talk to a financial adviser, and a legal representative where appropriate, for advice on your circumstances.
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This article was provided by Jason Windows. Visit the Jason Windows display at Home Base Design & Build Centre or go to jasonwindows.com.au.