November 01, 2012
Before taking the plunge, weigh up the costs vs. benefits.
In search of their great Australian dream home, property owners may be faced with the choice of renovating, rebuilding or reselling their family home. But how do they decide on the best path to take?
Homeowners should weigh up the costs versus the benefits of making home improvements, rebuilding or relocating, according to Australia’s largest independently-operated mortgage broker, Mortgage Choice.
Local Mortgage Choice broker Andrew Heath said, “When homeowners reach a point where their property no longer meets their family’s needs in terms of size, functionality and/or aesthetics, it is important to conduct thorough due diligence to decide whether to update, rebuild or resell.”
“Plateauing or falling property prices in some areas may be encouraging signs for those looking to buy well-priced properties more aligned to their vision of a dream home. However, buying and selling in a market with subdued property prices means some sellers may need to revise their sale price expectations.
“Homeowners considering relocating also need to examine the costs associated with selling and buying, such as fees for real estate agents, advertising, legal advice, stamp duty, removalists, etc. Those with a loan may need to investigate if there are early repayment or discharge fees, if the loan can be transferred to the new property and if lenders’ mortgage insurance is payable on the new property, etc.
“It may be that for some homeowners the extra funds needed to purchase and relocate the family to a more ideal home could be better spent upgrading the existing property.
“To help make the decision, research possible renovation and/or rebuild costs and ask local real estate agents for a market appraisal of what the property is likely to sell for in its current condition. It is also a good idea to talk to a mortgage broker, plus an accountant and/or financial planner for an understanding of the impact the decision will have on your financial situation.
“If the homeowner can achieve their desired renovation or rebuild without over capitalising on the investment, that is, when the cost of the renovation outweighs the value it will add to the property, they may wish to give further consideration to renovating or rebuilding.”
Should you decide to renovate or rebuild, depending on the scale of your plans, there may be a number of different finance options to consider, including, but not limited to:
- Loan top-ups tap into equity already built up in a property. Keep in mind there may be a minimum top-up amount and the extra funds will be stretched out over the remaining loan term. The potential loan amount accessible will depend on the amount of equity built up in the existing property and the lender may insist on a new property valuation.
- Personal loans suit homeowners who are unable to access the equity in their property. Personal loans can range from $10,000 - $25,000, they often include lower upfront and no ongoing fees and there is no security required: meaning the borrower doesn’t have to offer their home as security. However, borrowers are required to prove their ability to repay the loan. Note the interest rate on a personal loan is often higher than that on a mortgage and the loan term is typically between five and seven years.
- Line of credit loans are secured with a mortgage on a residential property. Funds up to a set limit can be withdrawn at any time and repayments can be made monthly or the balance can be paid in full. Often a credit card is attached to the loan. Borrowers may place their income into the loan account to save on daily interest and use the credit card to make most purchases. Borrowers are only required to pay interest on the amount they have spent ie. a borrower with a $500,000 loan who spends $220,000 buying a block of land and $30,000 on a vehicle purchase will only be charged interest on the $250,000 they have spent.
- Construction loans finance structural renovations and the building of new dwellings, where the funds are drawn down over time as the extension or dwelling is built, rather than in one lump sum. These draw downs are sometimes referred to as progress payments, and the lender usually sets a 12-month time limit on the draw down period. Payments are usually paid to the builder at certain construction stages.
Not all lenders provide all the loans mentioned above so visit a professional mortgage broker with a wide range of lenders on its panel. This will help you narrow your finance search to options matched to your individual needs and circumstances.
For more information contact Andrew Heath & his team on 02 4578 9904 or click here to "Book a Meeting"