If you find that your family has overgrown your house or feel inspired by the latest home décor trends to shift to an open floor plan, renovating your home could be a great option, especially if you cannot afford to buy a new property but look forward to upgrading your existing home. In fact, strategic renovations can significantly boost the value of your property and improve your lifestyle as well. No surprise then, there is a growing trend among home owners to buy a property that fits their budget and renovate it later, helping them get an early foothold in a heated real estate market.
According to a Westpac report released in April 2017, “Three-quarters (76%) of Australian home owners are on their home renovating journey…Of those, almost half (47%) are considering renovating their home, one in five (20%) are currently renovating, and 70% have undertaken renovations in the past.”
The report also revealed that Gen Y home owners are the most likely renovators, followed by Gen X and baby boomers.
The reasons behind the popularity of the trend range from having a better home (74%) to lower home maintenance costs (30%). Interestingly, those about to be married or expecting a new member in the family are most likely to be considering renovating.
Is renovation on your mind? According to the Mortgage and Finance Association of Australia, renovating is one of the most popular reasons for refinancing a home loan.
|Refinancing to a lower interest rate reduces the overall cost of the loan as well as brings down the amount of your monthly repayments, freeing up cash and boosting your savings. However, be sure to weigh the costs of refinancing against the benefits before making a decision. Learn more about refinancing here.|
In case you are undertaking substantial renovations, refinancing your mortgage could be the perfect choice for you. The most common options include home equity loans or opening a line of credit.
Home Equity Loans
In case you have held your home for a few years and have been making regular repayments on your home loan, you must have built some equity in your home, especially if your property appreciated in the meanwhile. An equity home loan or a line of credit home loan allows you to dip into this equity to fund cosmetic renovations such as painting the walls or installing a new bathroom or kitchen in your home.
You can calculate your equity by subtracting the amount you owe on your home loan from the current market value of your property. For example, if the market value of your property is $500,000 and you owe $200,000 on your home loan, it means you have $300,000 equity in your kitty. However, this does not mean you can borrow the full amount you have built as equity. Most banks let you borrow up to 80% of the equity in your home – which would be $240,000 in this case.
Line of Credit
Another option is to take a line of credit against the equity in your home. A line of credit allows you to draw down according to your requirement, and you are only required to pay interest on the amount that you have actually drawn down instead of the entire approved loan amount.
Many people compare a line of credit to a credit card secured against your home. While it allows you to use the equity in your home as you like, it is important to be strict to avoid wasting the equity in your home on things you don’t need.
While equity home loans are suitable for cosmetic renovations, you need to apply for a construction loan in case you are looking to make major structural renovations to your property. To qualify, a building contract and council approved building plans are mandatory. Get in touch with a broker to know more.
Some Tips for Renovating:
Refinancing your home loan could help you fund your renovations, but without planning, you could end up with much larger repayments on your hand. Here are some tips if you are refinancing to renovate:
Those of you who are looking to sell your property in the coming months, spring is lurking just around the corner, promising a ‘blooming’ price for your property, especially if you plan your renovations now, during winter months, to get your home sale-ready by the time the cold winds give way to the pleasant springtime.
As you strategize the changes to your home, let us help you with the financing part by bringing you low interest rate home loan deals from over 60 lenders across Australia. Compare mortgage rates online or get in touch with a broker with your home loan requirement now.
By Vidhu Bajaj
HashChing Content Writer