October 08, 2017
If your thinking of renovating your property it is important to consider how you intend to fund the renovations when putting your initial plan together.
With a large amount of property growth in Nowra and the Shoalhaven, a growing number of our clients are accessing the equity in their home to fund their next renovation.
Equity is the difference between what the property is worth and how much is left owing on the mortgage. So, say for example your home is worth $400,000 and you have $200,000 left to pay on your mortgage. This would leave you with $200,000 in equity.
It is important to note however, that the amount of equity a borrower can access depends on how much the lender will let them borrow. So you’ll need to prove that you can service any increase in debt – Essentially, just because you have $200,000 in equity, doesn’t mean you will be allowed to borrow all of this to fund your renovations.
Another way you could fund your renovations is through refinancing. By refinancing your mortgage, you may be able to borrow more money to help fund your renovation plans. And, with interest rates currently sitting at all-time lows and Australia’s lenders hungrily competing for business at the moment, refinancing could be an ideal solution for some borrowers.
Alternatively, you could also opt to fund your renovations via a construction or building loan. A construction loan works in a similar way to a home equity loan except that the lender will not release the full loan amount to a borrower upfront, rather they would release it to you in stages as the renovation progresses.
It is important that your loan facility is setup to suit your needs and requirements. This will involve having either free redraw or an offset account that will give you direct access to your funds when they are needed as well as save on interest prior to invoicing trades. We can provide advice on how to best structure this depending on your needs and spending habits.
All that said, if the renovations you have in mind are reasonably minor, you may find that a personal loan is your best option. Keep in mind though that the interest rates on personal loans are much higher (as a general rule of thumb) than the interest rates that are charged on home loans.
There are many important factors to consider before deciding on how you intend to fund your upcoming renovation plans. As mortgage brokers, we will be able to talk you through your options and help you to decide on a plan of attack that is best suited to your individual situation.
To book an appointment call 02 4422 4062 or book online from our home page.