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How To Finance Your Home Renovations

written by Shelley Marsh 05/12/2013
Financing Home Renovations

This post is brought to you by Newcastle Permanent

Renovating your home can be a fabulous way to add serious value to your home and improve your prospects at resale.  Interest rates are low and property prices are high, so renovating does appear to be an attractive investment option.  So the big question is, once you have picked out your new bathroom or kitchen, how are you going to finance it?

Here are some of the more common financing options when you don’t have the cash to pay for the renovations up front.

(1)    Take out a home equity loan or line of credit.

A line of credit or home equity loan is a loan against the value of your house but unlike a mortgage which must be used to purchase your home, a line of credit can be spent on anything, including renovations.  A line of credit can be spent in one hit or a little bit at a time, for example paying builders as you go.  Interest is calculated on the outstanding balance and you only have to pay the interest every month, that is it is an interest only loan.  Interest rates on a home equity loan or line of credit are generally slightly higher than mortgage rates.  Click here to find out more about home equity loans or lines of credit.

(2)    Redrawing from your current mortgage.

If you are ahead in your repayments and have a redraw facility associated with your home loan, you might be able to redraw from your current home loan to finance your renovations.  This can work quite well for small renovations.  You will need to check with your current lender to see if this is a suitable option for you and check if any fees are applicable.

(3)    Refinancing your mortgage.

If you have an existing mortgage, it can be advantageous to refinance it.  Especially if you are planning a major renovation, as this option will allow you to spread the cost over a long period and will allow you to take advantage of cheap mortgage rates.

(4)    Personal loan.

This can be a good option for financing smaller renovations.  They are short term loans which generally run from 3-5 years.  However, the downside is that interest rates on personal loans are generally higher than mortgages.

(5)    Tap into the bank of Mum and Dad.

This is great if you have parents or relatives who are willing to help you out.  However, mixing money and family can put a strain on relationships.  Make sure you have upfront, clear discussions from the outset on the rules and expectations around the money being lent, how it will be spent and when it will be repaid.

(6)    Use your credit card.

This is a convenient option if you already have a card with a high enough limit as you do not have to wait for a loan approval.  However, using your card can be costly, with interest rates of close to 20% being charged if you do not pay the balance off in full by the end of the interest free period.

There are a lot of options to choose from when deciding how to fund your renovation dream.  Which option is right for you depends on your individual circumstances.  However, once you have figured it out you are one step closer to calling in the builders and making that your renovation dream a reality.  Good luck!

This sponsored post is brought to you by Newcastle Permanent.

Newcastle Permanent:  have a range of options to help you finance the renovation of your home.  Check out their website here if you would like to find out more.

To find out The Best Thing You Can Do Before Designing A House Renovation” click here to visit my friend Bec who is also know as the Plumbette for some must read advice!

If you liked this post you might also like:

How To Pay Off Your Mortgage Faster

What Is A Line Of Credit And How Should You Use It?

How To Use An Offset Account To Pay Off Your Mortgage Faster

How I Saved Big On My Electricity Bill

Disclaimer:

The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial advisor for advice specific to your individual circumstances.

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12 comments

Mums Take Five 08/12/2013 at 3:56 pm

So much good advice. Its such a big thing huh.
Wish i could just tap into mum and dads account

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Alison @ The Thrifty Issue 09/12/2013 at 8:09 am

Yeh – my Mum and Dad’s account is probably worse than mine! We used our equity and also borrowed a little more. 8 years later we’re still renovating!!!! Cheers, Al

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Bec @ The Plumbette 10/12/2013 at 7:30 am

Great post and very timely because I just wrote the best thing you can do before you design a renovation. Meeting with a plumber and a builder to ensure the design is affordable and can be done helps keep the costs down.

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Emily 10/12/2013 at 7:58 am

I went with option 7 – have a builder hubby who does most of the work and calls on his subcontractors who owe him favours to do the other stuff. Works well!

Great list. Thanks for sharing.

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Annaleis from Teapots and Tractors 10/12/2013 at 1:36 pm

Great advice for when we finally get around to those renovations.

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EssentiallyJess 10/12/2013 at 4:19 pm

Great tips. Thanks for sharing 🙂

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Kylez @ A Study in Contradictions 10/12/2013 at 5:39 pm

My husband and I were lucky enough to be gifted Dave’s inheritance from his Grandmother so that we can have our bathroom re-done next year. Once we have the bathroom done we are hoping that we might then be able to re-finance our mortgage so that we can re-do the kitchen, replace the flooring in the kitchen and backroom and if there is any leftover, get a pergola in the backyard. We’ve been making extra re-payments on our mortgage for the last year and have built up a small re-draw as well so we are hoping that will help us get the re-finance despite the fact that I am currently on maternity leave. #teamIBOT

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Eva @ The Multitasking Mummy 11/12/2013 at 12:03 am

I’d probably only consider 1 & 2. In the past we have refinanced but it’s difficult if like us, you have a fixed interest rate and there will be a break fee. We currently have redraw available on our mortgage, it’s essentially our savings and offsets against the interest…to me, I feel better saving for renovations and to make sure we don’t over capitalise on the renos too.

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Allison Martinez 19/12/2013 at 11:51 am

My mother gave us our ancestral home for a wedding gift to me and to my husband. Given that our ancestral house is almost 20 years old and we have to renovate some part of it. Thank you for these tips it helps a lot.

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The best thing you can do before designing a house renovation - The Plumbette 31/10/2014 at 11:48 pm

[…] in them. It’s best to have a buffer in the budget to cater for such issues. For great tips on how to finance your home renovation have a read of this post by my bloggy friend Shelley at Money […]

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Bill Dunn 21/08/2017 at 6:28 am

Thanks for these tips on “HOW TO FINANCE YOUR HOME RENOVATIONS”. These tips are very helpful.

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Kat 11/10/2017 at 12:30 pm

Really this use a credit card is terrible, borderline idiotic advice. A if you have the cash to pay off the card in time why would you use it. B having a credit card with large debts or a high limit influence whether you can service a loan. Why not wait the month to get finance and not risk financial ruin by the hand of massive credit card debt. Also imagine if there are problems with the renovation itself and they exceed cost/ quoted time. What a recipe for disaster.

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