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.
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:
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.