With the recent pandemic, many homeowners take the opportunity of spending more time at home to finally put into motion renovation and home improvement projects that have been in the planning stages for some time. What better time to give your home a refresh and transformation, while adding value to your property?

These days a lot of property owners are exercising their rights to construct granny flats. That ability arises out of councils allowing higher-density populations to inhabit the one plot. This is creating an additional revenue stream & an ability to pay off debt more quickly.

However, not all of us have the necessary funds to renovate. Below are 6 financing options that you can consider to help fund your dream project.

1 Borrowing against the current value

This is a common way for homeowners to obtain funds upfront for value-adding renovations, also known as Equity Release or Top-up home loans. You may be able to borrow up to 80% of the value of your home depending on your circumstances and any limits created by mortgage insurance.

2 Borrowing for substantial renovations

If the renovations are substantial & the plans well-drawn a valuer with access to the plans could consider re-valuing the property with the renovations imagined as being completed. This is more in the case of additional rooms or garages. But the increased perceived valuation could enable more funds to be borrowed so that the total borrowings don’t exceed 80% of the perceived valuation.

3 Line of credit with an approved limit

While convenient in terms of paying interest on only the funds you draw down, with a revolving credit line feature for easy access, this option has a higher interest rate than the Top-up or Construction loans. It is also important to manage repayments so that you reduce the principle of the loan and not just pay the minimum amounts for the interest. This option allows you to borrow up to an approved limit, and you can re-borrow without having to reapply, making it an ideal financing option for ongoing projects. 

Note each of the above can be added to the current mortgage as a 30-year loan but who wants to wait that long to repay? Sometimes the lender will require a separate facility whilst the renovation is in progress but most will allow the borrower to marry the old facility with the new.

4 Personal loan

For minor renovations – personal loans that are usually capped at around $30,000 can be a quick and easy option to get things rolling. 

However, interest rates on personal loans will be higher than the Top-up or construction loans, and payments are usually required to be made over seven years at the maximum & are unsecured.

5 Credit card 

For small-scale and simple DIY projects, using your Credit Card may just be the most convenient option. While the interest rates are very high in comparison to the above options, you may save on time spent setting up a loan and having to pay the associated loan establishment fees.

6 Builder

The builder for your renovations may offer to finance the project. This can be convenient for you as you don’t have to go through the admin work that’s involved with applying for finance or processing the progress payments.

Tips to plan your renovation

When planning your renovation and financing options, consider how you can make the most of your funds to increase the value of your property. Generally speaking, the cost of carrying out the renovation should not be more than the value that will be added to your home. This is very sound financial projecting—it’s easy for the heart to overrule sound logic in this process. The type of thinking could be, for example, if I add another bedroom, am I going to actually add value? This question may be addressed by researching the values of other similar properties in the area.

Ozloans Finance is a specialised financial facilitator and finance broker in Sydney servicing residential financing projects including property upgrades and renovations. We are committed to providing a personalised and expert finance support service & have been since our launch in 1999. Get in touch with us to discuss your home renovation financing needs today!