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Borrowing money for renovations: What you need to know.

You’ve been dreaming of that new kitchen and dining room for as long as you can remember, and now the time has come to put your plans in motion. But do you really have the budget to afford the works? Here are a few things to think about before making the leap from Pinterest board to blueprints.

Work out your budget

Before you look at borrowing any money, you first need to work out how much your renovation will cost. Get Ask An Architect to send you their comprehensive guide to costing a renovation.

Before your finalise your plans, you can arrange for a building inspector to help identify any structural work that might be needed. Major work could significantly increase your budget, so it may be worthwhile to talk directly to a professional to get a more tailored understanding of how much you’re up for. Architects and master builders are usually happy to provide a quote, so think about getting more than one quote to give you an idea of the range.

In addition, add a percentage for contingencies: most experts recommend that you add another 10% to 20% to the overall budget to cover the inevitable delays and complications that arise throughout the renovation process.

Once you know what the costs may be, you can start to think about how to raise the cash. Of course, in an ideal world you’ll have saved up at least part of the amount beforehand, but renovations can run into the tens or even hundreds of thousands, so most people will need to borrow some money.

Unlock your equity

If you’ve been in your home for a while, chances are that you have considerable equity, both as a result of paying off your initial home loan and from rising property values.

Equity is the amount of your home that you own; that is, the value of your property, less the outstanding loan amount. For example, if your property is valued at $500,000 and you owe $300,000 on your loan, your equity is $200,000 ($500,000 – $300,000 = $200,000).

As long as you can meet the repayments and the renovations are likely to add value to your property, most lenders should be willing to lend you a percentage of your equity for home renovations. Depending on your situation, this equity could be accessed through redrawing, increasing your existing loan or refinancing your loan entirely. A mortgage broker will be able to advise on the best option for you.

Building loans

Most home loan providers will offer a product called a building or construction loan, which acts as a line of credit that you can draw on as renovation costs become due. The advantage of these are that you aren’t making repayments on the full value of the loan at once, but only on the progressive loan balance, which will change over time. That means you can start to pay off the first invoice before the next ones come in, saving you money overall.

Your broker can assist in checking with your home loan provider whether the loan is ‘interest only’ for an initial period. If it is, this will also help to keep your costs down during the crucial building period. If the provider doesn’t have a specific building loan, they may let you have a general line of credit, which functions similarly. Once the renovations are finished, the loan or line of credit can even be rolled into your home loan.

Personal loans

Especially where a renovation is small – perhaps you just want to update your kitchen without any building works – you might consider a personal loan. As personal loans are generally not secured against your property, the interest rates are usually higher. However, as the term of the loan is much shorter, you should pay less interest over time.

Each option has advantages, so it’s worth spending some time considering them carefully. Remember, your mortgage broker can always help you with any questions you might have.

MAKE us your business partner.  Whether you are buying property, business or equipment, MAKE Finance Group will provide the finance solutions and advice you need. Call us today on 02 6021 6600

This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.

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Let us worry about the financials, as we make it happen for you.

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This ensures you receive the best offers with the objective of saving money and increasing profitability.

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Here is what a couple of our clients have said about MAKE Finance Group.
  • Geoff at MAKE Finance Group made the process of purchasing an investment property a seamless process. Thanks for your patience Geoff. I would highly recommend Geoff and his team at MAKE for all your finance needs. Cathy, Warrnambool

  • Geoff and the team at MAKE Finance were unbelievably helpful when we needed to refinance our business loan. After a stressful and confusing ordeal with our existing lender, Geoff made re-financing so easy, and it tool very little work from our end to sort everything out. We are so happy with everything sorted and not having to worry about our finance arrangements. We would encourage anyone with any financing needs to go and see Geoff and the team at MAKE Finance, thanks Geoff! Philip and Jenni, Holbrook

  • Thank you to the team at MAKE Finance Group, for helping me purchase my first truck. I cannot thank them enough as they went above and beyond all my expectations and made the whole process easy and stress free, I would highly recommend them to anyone. Rob, Canberra

  • Applying for a business loan (direct through a Bank) was becoming a stressful and difficult task for us as everything had to be discussed over the phone followed by numerous paperwork. Geoff at MAKE Finance Group was our savior. Your personalised service made the application for our business loan & business vehicle loan so easy. We now operate a very successful business & we could not have done this without you. We love your work! Lloyd & Kristy Franchisee of Jim’s Mowing Wodonga East

  • “MAKE Finance Group were an absolute pleasure to deal with. Right from the very beginning, even when we were just asking questions as to how home loans work and how much we could afford, they made the process incredibly easy and put everything into terms that we could understand. There’s a lot involved with buying your first home, but it felt effortless with the superb help from both Jess & Geoff. MAKE Finance Group definitely come highly recommend from us – thanks guys!” Sophie & Zach, Albury

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