Plan and finance your home improvements over the Easter break
This year’s Easter break is unusual. Just two days after you head back to work with your chocolate hangover, it’s Anzac Day, followed by Friday and then another weekend! Using only three days’ leave, you could get 10 consecutive days off and have a proper break! It is also school holidays during this entire time in most states (except for Victoria and Queensland).
All that downtime provides a great opportunity to start getting organised for those small renovations you’ve been thinking about – and the kids can get involved too! Start with planning and designing your reno and researching materials. Call up some tradies and get some quotes so you know what you are looking at pricewise. Next, a chat with your Mortgage Choice broker is in order, so you can determine the best way to finance your project. It’s also a good idea to check your home insurance policy prior to commencing any major structural renovations.
Autumn is a great time for renovations; in most cases, the weather is still mild but not too hot. So, once your finance is approved, jump right in before winter sets in!
How to finance a small renovation
Personal loan
Personal loans tend to be relatively simple to arrange and interest rates can be fixed, which helps with budgeting. There may be fees, however, and interest rates tend to be higher than mortgage rates.
An unsecured personal loan is typically the quickest way to fund a small renovation (up to around $30,000). These loans usually attract high interest rates (potentially above 10%, but still cheaper than most credit cards) because you are not using an asset as security.
A secured personal loan (secured against a car or house) should allow you to borrow more at a lower rate than an unsecured loan.
Redraw
Small renovations may be able to be financed using your loan’s redraw facility. Not all loans have this facility, however, and you need to have been making additional repayments over the years. Redraw fees are typically less than paying interest on a personal loan, although you can only redraw up to the amount of additional repayments you have made. While your interest rate remains the same, you will increase your loan balance again and also the time required to pay off your mortgage.
Home equity loan or top-up
If you have equity in your home, for many clients this may be a better option for larger renovations as interest rates tend to be lower than for personal loans. This does mean that you will end up with a larger mortgage, however, which will affect repayments, interest paid and the time taken to repay the total loan. In some circumstances, you may end up paying more total interest than if you used a personal loan.
A line of credit loan
Smaller renovations can also be funded through a line of credit if you have equity in your property. You can set this up with your current lender or a new lender. Interest tends to be higher than for a home equity loan or redraw, and there may be fees to use the facility. However, interest is only paid on the balance owed, so you just draw down the money as you need it (for example, to pay builders as you go), up to the agreed limit.
Refinancing your home loan
Requiring extra finance can be a good time to reassess your home loan to see if you can get a more suitable and competitive deal on the larger amount with a different lender.
Unsure what to do? Here are a few ideas:
- If your kitchen is tired or dated, it might be time for an update. Most people spend considerable time in their kitchen and it gives a great value boost for resale. Costs can start at around $6,000 for a basic revamp, but you can spend up to $50,000 or more if kitchens are your thing.
- Could your house use another bathroom or a bathroom upgrade? Many buyers like modern bathrooms, but be careful not to overcapitalise. You could spend anywhere between $5,000 for a basic conversion, or between $25,000 and $75,000 for an addition, depending on your tastes.
- Repainting will give any house a real lift. Patch up chips and cracks and give the house an overhaul with fresh, contemporary colours. Painting costs vary widely and depend on the style and size of the house. Painting the exterior may be in the vicinity of $4,000 to $20,000, while the interior of a three-bedroom house could cost between $5,000 and $10,000.
- Improve your street appeal. Some ideas include a new front door and porch upgrade, new cladding, modernise the garage or carport, overhaul the garden, install lights, replace your front fence and letterbox.
- Outdoor entertainment areas. Outdoor living in most parts of Australia is fairly sought after and a comfortable, spacious, well-designed entertainment area can be as valuable as an extra room. A timber deck, retaining wall, outdoor kitchen and BBQ area may be just what your house needs.
It can be refreshing and exciting to make some home improvements to enjoy day to day, but it also adds value to your home in the case that you sell, and increases your equity if you intend to borrow again. Get in touch with your Mortgage Choice broker now to discuss your funding options.
