Do you have a home improvement idea? Thinking of sitting on your new deck, under a new pergola this summer? And if it’s really hot, maybe you’ll jump in your new swimming pool with the kids… Sounds great, but how are you going to pay for it?
A home Improvement, whether big or small can be costly, and that often means seeking finance to make your plans a reality a lot sooner. While not as fun as planning the actual renovation, taking the time to find the right option should be just as important as it can help make renovating and paying back the funds you’ve borrowed less stressful.
Some home improvements that are commonly financed are swimming pools, decks, pergolas, landscaping, home extensions like building on a new room, new kitchens and new bathrooms. Even when renovating yourself, a home improvement can still cost more than what you might have in savings. And even if you do have the savings, you can use them for something more exciting like a family holiday.
Below are five ways to finance home improvements.
If you have home equity available you may be able to take out a new home loan or extend your current home loan to pay for renovations. Equity is the difference between the value of your home and the amount you owe on your home loan.
If you have had your home loan for a long period of time or you home has increased in value since you purchased it, you’ll more than likely have some equity which you can borrow against for renovations. Your mortgage broker will be able to work this out with you.
Refinancing your home loan to pay for your home improvement is also suitable, particularly for large renovations as it allows you to spread the cost over a longer period of time and you’ll only be making one repayment as opposed to paying off a personal loan or credit card in addition to your home loan.
Refinancing is also a great opportunity to look for a better deal on your mortgage with a lower interest rate or better features from a different lender. A 0.25% saving on a $500,000 Home Loan can save you more than $29,000 over the life of your home loan*. We can review this for you, for free with just 4 pieces of information from you… see here
When you’re looking at refinancing and working out if it is going to be financially beneficial, you do need to consider there may be fees associated with exiting your existing loan and upfront costs associated with a new loan. Your mortgage broker will be able to work all of this out and do the comparison with you.
Many home loans have a redraw facility which means if you have been paying off more than your required payments, you may be able to take out this extra amount. Depending on your lender, there can be minimum and maximum amounts you are able to redraw and you may be charged fees. However, often no extra approval is needed which can make this an attractive, fast and easy way to arrange renovation finance.
Taking out a personal loan for home improvement is becoming quite popular among home owners for all sizes of renovations as you can usually borrow between $5,000 – $50,000. A personal loan allows you to keep track of the debt specifically associated with the renovation and establish a budget to pay back the loan with set repayments over a fixed period of time.
While the interest on a personal loan will generally be higher than on a home loan, as you are paying back the loan over a much shorter period of time (between 1 to 7 years) the actual amount of interest you pay can be less.
If you have a credit card with a high enough limit to cover the cost of your renovations, it can be one of the quickest and most flexible ways of getting the funds you need. If you don’t already have a credit card, but only need to borrow a smaller amount of money, it can also be a good option without having to go through a loan application or make changes to your mortgage.
However, you do need to consider the interest rate which may be higher than the other financing options available to you, and the amount of time it will take you to pay the balance off. If it will take you a long term to pay back the debt, financing renovations with a credit card can become quite costly with the interest you end up paying.
Lend Me – Home Loan Mortgage Brokers – Perth, Western Australia
*Savings calculated on a 30 year loan term. These examples are actual client cases that had specific situations and needs, our responsible lending process will apply in all cases. See our credit guide for further detail.