Ready to renovate your home? Whether you’re redecorating or knocking down a few walls, you need to consider how to fund it. The cost of renovating can easily turn into an expensive task, so you will need to keep the following in mind:
- Understand the real cost of renovating
- Know what you can afford
- Adding a buffer to your original budget.
Once you have a grasp on how much your renovation will cost, you’ll need to organise financing. We’ve compiled some of the most common options below:
1. Refinancing your mortgage
Refinancing your mortgage, could mean a lower monthly repayment to help you save for your renovation. This could mean the difference between adding that dream pool you’ve always wanted or not. In saying this, it’s important to understand the pro’s and con’s of refinancing.
Pros of refinancing
- Lower repayments
Refinancing could mean a lower interest rate, which may decrease your monthly repayments. This can be a great way to help save for your renovation and get their sooner.
- You could switch from a variable rate to a fixed rate
By switching from a variable rate to a fixed rate, it could give you a sense of security, especially with interest rates at an all time low.
- Save money
Usually, most borrowers refinance to save more money. This is achieved by switching to different lender, or simply changing the type of loan to one with a lower interest rate. Saving a few hundred dollars extra each month can make a massive difference to most families, especially when you have renovation plans.
Cons of refinancing
- Costs involved
It’s important to understand the costs involved with finding a new lender as some borrowers are caught off-guard when they’re required to pay exit fees. Some of the other fees to be aware of are the valuation and application costs as well.
- Longer loan duration
With refinancing a home loan, it may also mean locking into your home for a longer period of time. If you were planning on moving within the next year, refinancing your home may not always be best option for you.
- Lender’s Mortgage Insurance (LMI)
LMI may apply to refinancing your loan, even if you’ve already paid for it when your first purchased the property. Some lenders will require you to pay it again if you have less than 20% equity in your property. Even if your potential lender will let you add the LMI to your new loan, it may not outweigh the financial benefits of refinancing.
2. Redrawing on your mortgage
Redrawing on your mortgage is another option to fund your renovations. If you’ve snuck away a few extra payments over the years, check to see how much you have available in redraw. You may surprised how much you can actually use to fund your renovations. For example, if you have $50,000 sitting in available redraw you can withdraw those funds for your home renovations and in many cases only pay your standard home loan rate.
3. Increase your home loan
There are times when it makes good sense to request an increase on your home loan. With the recent moves in the property market, your home value may have increased enough let you borrow the additional funds from the bank. You need to be aware though, not all home loans offer a top-up option, so it’s best to discuss with your broker if this can be an option. If your home loan does allow an increase to the limit, it will depend on how much equity is available in the property. As a starting point, have a chat with the team at Irwin Financial Solutions to see if this is an option for you.
It’s worthwhile considering all options that may be available to you and there’s no one more qualified than the team at Irwin Financial Solutions who has over 20 years experience in the finance and property industry. Have a chat with Paul Irwin today to discuss the best option to help fund your renovations.