Renovating your property is one of the best ways to increase home value, but it doesn’t come cheap. As a homeowner, it can be difficult to save up enough cash to cover a renovation when you’re also juggling a mortgage and all the other expenses that come with owning a home. It’s for this reason that many people look to different financing options to help fund their home renovation dreams.
So, if you’re on the hunt for some home improvement financing options, we’ve pulled together some of the best ways to fund your home renovations.
Savings
Depending on your financial situation, you might be able to use your savings to fund your renovations. If your home loan has a redraw facility or offset account, you can often make your savings work for you by reducing your interest repayments.
Before you can use the cash in your redraw facility, you’ll need to make sure you’re making extra contributions on top of your minimum loan repayments. But once you’ve built up a bit of a stash, you’ll be able to withdraw the funds to put towards your home renovations.
Alternatively, an offset account is a type of transaction account that’s connected to your home loan. Any money saved in this account works to offset your loan balance, helping you to save on interest. You can usually access the funds in your offset account whenever you need using a debit card, just like a regular transaction account.
Home equity
If you’ve owned your home for a little while, chances are you’ve built up a bit of equity in your property. In short, equity is the difference between the value of your home and your outstanding loan balance. It essentially refers to the portion of the property that you own outright.
When it comes to using your home equity, you’ve usually got a few options, including cash out loans and mortgage top ups. Here’s how they work.
Cash out loans
A cash out loan, also known as a home equity loan or mortgage top up, allows you to dip into your equity and turn it into a cash payment. When you take out a cash out loan, you’re essentially increasing the amount you owe on your existing mortgage.
Line of credit
Some lenders offer a line of credit, which is another way to access your home equity when you need it. A line of credit is similar to a credit card. Rather than providing you with a lump sum payment, like a cash out loan, a line of credit allows you to borrow funds as you need up to an approved limit. That way, you only pay interest on the amount you borrow.
Read our article on how to access equity to renovate your home if you’d like to learn more.
Refinancing
Not everyone has access to a redraw facility or mortgage top up. This is where refinancing can come in handy. Refinancing is another way to take advantage of your home equity while also giving you the opportunity to explore other loan options.
When you refinance, you replace your existing home loan with a new mortgage. If you’ve built up a substantial amount of equity in your home, you’ll often be able to take out an even larger loan, which you can use to fund your home improvements.
There are lots of different options available to you if you choose to refinance your home loan. With this in mind, it’s important to do your research to find a loan to suit your needs and your financial goals. If you’d like to learn more about refinancing, reach out to your local Aussie Broker for free^ help.
Renovation loan
Also known as a remodel loan, a renovation loan is a special type of home loan that’s specifically designed to help you finance renovations, remodelling or home improvements. These types of loans allow you to spread the cost over a period of time, so you don’t have to worry about tapping into your savings.
Construction loan
For more extensive home renovation projects, you might be better off taking out a construction loan. Unlike other financing options and loans, construction loans are paid out in instalments that align with the different stages of your renovation project. This can be a great way to manage your cash flow throughout your project. Plus, by drawing down your construction loan over the course of your renovation, you’ll only pay interest on the amount you’ve borrowed rather than the entire loan amount.
Personal loan
If you don’t have enough equity in your home or you’re not in a position to refinance your mortgage, you might want to look into a personal loan for home improvements and renovations. Personal loans are usually best suited to smaller renovation projects, with many lenders offering personal loans anywhere from $4,000 to $50,000. Just keep in mind that personal loans typically have higher interest rates compared to home loans and construction loans.
What are the benefits of renovating?
Renovating your home comes with a range of benefits, from enhancing your quality of life to improving your property’s value. Let’s take a quick look at some of the advantages you could enjoy with a home renovation:
Increase home value: We’ve said it once and we’ll say it again, renovations are ideal for adding value to your home. In particular, kitchen and bathroom upgrades can significantly increase your home's market value.
Enhance functionality and comfort: From adding extra bedrooms and bathrooms to creating brand-new multipurpose spaces, renovations can help to improve your home’s functionality. These improvements can make daily life more comfortable, especially as your family grows or your needs change.
Personalise your living space: Renovations allow you to tailor your home to better meet your preferences and lifestyle. Whether you’re updating outdated décor, creating an open floor plan or adding custom features, renovations help make your home feel more like it’s yours.
Fix existing issues: Renovations are an excellent way to address underlying issues, like structural concerns, plumbing, electrical problems or leaks. Fixing these early on can help prevent costly repairs down the line and improve your home's safety.
Boost home equity: Sometimes, you’ve got to spend money to make money. By upgrading your home, you can build equity faster. For homeowners looking to use their home as a financial asset, increased equity provides more options, such as refinancing for better terms or accessing funds for other investments.
Home improvement tax deductions: If you’re renovating an investment property, you might be able to claim a remodel tax deduction. Renovations are improvements to the property that add value, either by increasing the rental yield or adding capital value. They’re considered capital works deductions, which are claimed over several years. Before you claim your renovations as a tax deduction, it’s important to make sure you understand the tax implications and ATO requirements.
Ask your Aussie Broker about renovation financing options
Whether you’re looking to renovate to sell or you’d like to upgrade your home to something a little more comfortable, Aussie can help with your renovation lending needs. Your broker will take the time to understand your renovation goals and provide you with a range of options that best suit your needs. Book a time to chat to get the ball rolling on your home renovation.
