7 ways to finance your next home renovation
There are lots of reasons to renovate your home. You might have bought your house as a project home with dreams of ‘what if’. Maybe your family has grown and you need some extra space. Or perhaps you have your heart set on the ultimate entertainers’ kitchen or a bathroom that feels like a day spa. Whatever the reason, there’s one major factor that you need to get sorted before you start – how to pay for it. If you’re looking at finance, there are lots of options available. Let’s walk you through the 7 most common ways to finance your next home renovations so you can choose the right one for you.
1. Use your equity
Have you been paying down your home loan or has the value of your home increased since your bought it? That means you’ve got equity in your home. Equity is the difference between the value of your home and what you owe on your home loan. And you may be able to access this equity for your renovations.
First, you need to work out how much equity you have. If you have a home worth $800,000 and a home loan for $600,000 you have $200,000 equity. However, you usually want to keep your loan-to-value ratio (LVR) under 80% of the value of your home, so you don’t want to access any equity beyond that mark. In this case, an LVR of 80% would be $640,000. So you would have $40,000 you can access.
Just remember, equity isn’t just free money. When accessing equity you are increasing the amount outstanding on your home loan.
2. Access a redraw facility
Depending on your loan, you may be able to access a redraw facility to finance your renovation. When you take out a home loan, you agree to make minimum repayments. If you’ve made any additional repayments above that minimum, you can access that extra money you’ve paid through a redraw facility (in other words, take it back). But again, this will increase the amount outstanding on your home loan.
3. Refinance your home loan
Another way to access extra finance through your home loan is by refinancing. This essentially means taking out a new home loan (using it to repay your old home loan) with an additional amount included to pay for your renovation. Be aware, break fees may apply if you’re currently on a fixed home loan. Also, by rolling your renovation costs into your new home loan, you’ll end up with a bigger mortgage. And you’ll be repaying those extra borrowings for the life of the loan (which could be up to 30 years).
4. Get a tailored renovation loan
A renovation loan is a special type of personal loan designed specifically for financing renovations. That means it’s tailored to the unique needs of a renovation process. Just like any other loan, they can be secured or unsecured with fixed or variable interest. However the repayment period is typically much shorter than a home loan, meaning you can pay it off sooner.
RenoNow specialise in renovation loans tailored to suit most kinds of home renovations.
5. Get a building and construction loan
A building and construction loan is another kind of loan designed specifically for building projects. Rather than access your loan as a lump sum, you can draw down your loan in parts at various stages of the project. And you only pay interest on the money you use. The application process is typically longer than personal loans and you may have to meet valuation requirements.
6. Get a personal loan
You can also simply apply for a personal loan. Personal loans are available for many different kinds of personal expenses, such as to pay for a car, holiday or renovation. There may be a limit on how much you can borrow and you’re usually required to repay a personal loan in between one and seven years.
RenoNow renovation loans are a type of personal loan designed to finance renovations. The application process is straightforward and simple, doesn’t require reams of paperwork and you get an outcome in under an hour.
7. Apply for a government grant
From time to time, the government offers grants such as HomeBuilder to help fund building and renovations to support confidence in the residential construction sector. Applications for HomeBuilder closed in April 2021. Applicants have until 30 April 2023 to confirm their application and provide all supporting documents.
8. Use your credit card
Ok, technically there’s an eighth way to finance your renovation and that’s by using your credit card. But we haven’t included it in the count as it’s generally not recommended. Interest rates on credit cards are typically much higher than other loans. And if you have a good credit score, you may be able to access a much cheaper loan. Personal loans like RenoNow loans are based on your credit score, so the better your credit score, the lower the interest rate.
If you’re planning on funding your renovation using savings but need to cover a gap with additional finance, a personal loan like a RenoNow loan can be a more cost effective, quick and easy way to pay for things like labour or appliances.
Looking for finance made for your needs that’s simple and easy? Apply for a RenoNow renovation loan in under 5 minutes.