What to consider before renovating

July 07, 2016
Nicholas Dennett

The decision to renovate is a common sticking point for homeowners,
who can spend hours weighing up the cost benefits.

Whether your motivation is to add value to your property or to add a
touch of your personality to the home, renovations are expensive and
debt often follows.

By working with a mortgage broker you will be able to find solutions
that benefit your long-term goal, rather than hindering future plans.

A survey by Finder.com.au found only 27 per cent of homeowners think
refinancing their home loan to renovate is a feasible option to raise
funds for the next big step.

In this survey, 93 per cent of homeowners who refinanced to renovate,
said they had concerns over whether they would be able to afford the
repayments, and whether the proposed renovation would add value  to
the property.

While your MFAA broker can’t assist you with forecasts on future
property values, he or she can help you reassess your current
financial position, run through your plans and future payments, and
decide if you can afford to take on more debt.

Laying the foundations

With a broker in your corner, the next step is to investigate how much
you need to borrow. Work out the specifics of your renovation, what
the average cost to renovate is in your area and how much you are
eligible to borrow. You should aim to spend no more than five per cent
of your property’s value on renovation.

If renovations are likely to take over your living quarters you may
need to also consider the additional cost of accommodation for the
renovation period..  This is another cost to factor into your budget.

Get bang for your buck

Once you decide to renovate, if you are trying to add value to a house
to resell, it is important to look at the rooms and areas that will
add the most value. These are average renovation prices, however
prices will fluctuate based on the city and suburb.

·         Kitchen

If you are a fan of the show The Block, you will know kitchens sell
houses. According to realestate.com.au, the average renovation cost
you should be spending on a kitchen is between $12,000 and  $16,000.

●     Bathroom

The average bathroom space in Australia is six square metres. Look to
spend around $9,000 - $12,000 as the bathroom is a highly trafficked
space and needs to appeal to a wide variety of investors.

●     Other areas

An extra bedroom or a deck outside both add appeal and improve the
standard of living for the homeowners.

Finishing touches

The final hurdle to look at is the council fee. The council can charge
you up to $2,000 for an application fee, although prices can vary.
After speaking to a broker and finalising the renovation, make sure
you account for an extra 10 per cent in your funds, to cover any
unexpected costs.

Deciding on the type of loan

If after the assessment and investigation you decide to renovate,
there are three types of loans to consider to help refinance and
renovate your house: a line of credit loan, a construction loan or
increasing your existing home loan.

Contact your broker

In a 2015 Finder.com.au survey, 42 per cent of homeowners said they
were worried that, by unlocking home equity, they would not be able to
afford the larger repayments on their mortgage.  However, every
household and property is different, as are the funds needed to
achieve a renovation.

To make sure you get a great outcome, speak to your Mortgage Choice broker.

Posted in: Renovating

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