Aussies love home renovations, and having to stay at home during the peak of the COVID-19 pandemic resulted in Australia experiencing a boom in home refurbishments. In the 12 months to March 2022, Australians have spent over $11 billion on home improvements alone, according to Australian Bureau of Statistics data.
Home renovations can increase both lifestyle and property value. Even if you don’t have plans to sell your home, this is still something to consider when deciding whether to take on a renovation project. However, the high costs of skilled tradespeople and materials mean a renovation can be expensive. Hence, people turning to home renovation loans.
Financing Home Renovations
If you’re planning a home renovation, financing is a crucial consideration. Here are three ways to finance your home renovation:
Use Your Savings or Equity
One option is to use your savings or access equity in your property through offset accounts or redraw facilities. This method is ideal for smaller projects or if you have enough savings to cover the renovation costs.
Refinance Your Home Loan
Another option is to refinance your home loan and use the equity in your property to borrow funds. This option is ideal for moderate-sized renovations and allows you to spread the cost over a longer period.
Apply for a Construction Loan or a Home Renovation Loan
For extensive renovation projects like a knock-down rebuild or extension, consider applying for a construction loan. Construction loans can be interest-only for a period, allowing you to withdraw the funds as needed to pay the renovation invoices. This option is ideal for larger projects with more complex financing needs.
Home Renovation Loans
If you’re considering a home improvement loan for renovations, it’s essential to determine what you want to accomplish before you start. You may wish to make stylistic, structural, functional, or green changes to your home. Some common renovations include kitchen and bathroom remodelling, adding a swimming pool, making green/energy-efficient upgrades, home repairs, adding new exteriors or extensions, garden landscaping, adding storage space or purchasing new furniture.
While lenders will consider your credit history when you apply for a loan, having a good credit history can help you get a loan more quickly, assuming you can afford it. Most lenders will ask for information about your income, employment, current liabilities, ongoing debts, and defaults. They may also be unwilling to lend if you have a history of bankruptcy or are currently facing financial hardship.
Secured personal loans or mortgage refinancing may offer more flexibility, and some lenders may consider you for an unsecured loan even if you have less-than-perfect credit. However, interest rates will likely be higher if you’re considered a high-risk borrower.
When considering a renovation loan, you should ask yourself several questions, including:
Undertaking a renovation project is an exciting time, and securing the right financing can be a critical aspect of making your dream a reality. While renovation loans can be an excellent option, it’s essential to ask yourself several questions before making a final decision.
Can I afford the repayments?
You should calculate the cost of your loan, including both the interest rate and the comparison rate (which includes charges), as well as your loan term and repayment frequency.
How flexible is my loan?
Look for loans that allow additional repayments, redraw funds, or early repayment without penalties.
Have I applied for the right amount?
Borrowing too much or too little can be a problem, so consider how much you need to complete your renovations and how it will affect your interest rate.
It's important to take the time to consider your financial situation carefully before applying for a renovation loan. By asking yourself these essential questions, you can make an informed decision and secure financing that meets your needs both now and in the future.
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