Reasons to Refinance: #2 Renovations

Should I refinance if I'm renovating? Can I afford to renovate?

It can be a good idea to restructure your finances for renovations, especially if you've got big plans.

Many home loans come with construction loan options built in, but many don't, so you might need to refinance to one which does.

Restructuring your loan should make it easier for you to pay the bills that come with renovations as your existing home loan might not offer construction options.

Here's why it can be a good idea to refinance to renovate:

1. You can access the equity in your property to fund the renovations. So, if your home is worth more in dollar terms than the amount you owe on your mortgage, then you can often refinance your loan to access that equity and then draw down on that amount to pay for your renovations. Great for when you've worked hard to pay down your mortgage, and/or the market is rising and your property has increased in value the longer you've held it.

2. You can increase your cash flow during the renovation process. Make your life a little less stressful while you are spending a large portion of your extra money on paying contractors, and buying fixtures and fittings by refinancing to an interest-only loan. It'll vastly reduce the amount of money you'll need to find to pay your mortgage repayments during the work. Then once you've completed your project, the plan agreed with your lender would be for your repayments to switch back to principal and interest, paying down the balance on your loan.

There are two main types of renovation lending:

1. Construction home loans - which are more appropriate for structural renovations where serious work is carried out to the home including new piping, wiring, walls or adding a floor to the home.  If you're going to be making extensive renovations to your home, and require or desire a draw-down facility to minimise costs when building, then a construction loan could be right for you; OR

2. Line of Credit home loans - which better suit smaller, cosmetic renovations like the installation of a new bathroom or kitchen.

Or, as a bonus option, you may simply need a Personal Loan, depending on the size of the renovation project. It's best to get your desired renovations planned and costed to help you decide which loan type will best suit your project.

IMPORTANT CONSIDERATIONS:

While you're madly pinning renovation ideas to your dream board on Pinterest, it's worth keeping in mind these questions:

Will the renovations you have your heart set on add value to the home in the long term? And if so, potentially how much?

Or will you be overcapitalizing and spending more money than you should?

If you are renovating your home, then the answer is highly personal, but if you're renovating an investment property it can be easier to separate yourself from the outcome. Common sense would suggest that it's a good idea to ask some property professionals for their estimation of your before and after property values and to seek competent financial advice too.

So, if you can't afford your renovations from your savings on hand, then investigate your credit options to access the equity you may have built up or arrange to pay interest only during the project.

If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email [email protected]

Thanks for reading

Bob

Disclaimer

The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If any products are detailed on this website, you should obtain a Product Disclosure Statement relating to the products and consider its contents before making any decisions. Where quoted, past performance is not indicative of future performance.
Malpass Finance Pty Ltd disclaim all and any guarantees, undertakings and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice on this site. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information on this website is no substitute for qualified financial advice.