Popular home renovation programs such as The Block and House Rules are encouraging home owners to make home renovations. But not all home owners have the same budgets. So we hear you ask, “How can I affordably renovate and still make profitable changes to my property?”
The most common forms of renovations are on kitchen, bathrooms and adding on an additional bedroom. These renovations allow a home owner to improve a home’s liveability and its potential value.
But, according to the 2013/14 Kitchen and Bathrooms Report, published by Housing Industry Association (HIA), bathroom renovations increased during the 2012/13 year to almost $14,000 per room. Most renovations to kitchens occurred in homes between 11 and 20 years-of-age. However, spending $14,000 per room on a renovation is not an affordable option for everyone.
So if you’d like to renovate, but are concerned that you cannot afford to, then the good news is that there are options available that may allow you to make your renovation dream come true. Let’s look at these now.
Renovations can be costly, but you can borrow to make changes, especially if the renovation will add value to your home. Typically, there are two types of loans you can select from. These are as follows:
1. A Home Equity Loan – If you’ve had your home for sometime then it’s highly likely that you’ve built up equity in your property. This basically means that you owe less on your property than its market value. For example, if you bought the property for $190,000 15 years ago and you’ve paid 80,000.00 off this, then you owe $80,000 on your home.
However, over the 15 years of ownership your home value has increased to $450,000. Therefore, you have $370,000 in equity. Based on these figures, a lender would be willing to lend you up to 80 percent of your home’s value, minus what you owe. For instance, 80 percent of $370,000 is $296,000. Of course, normal lending criteria would apply if you decided to apply for a renovation loan.
2. A Construction Loan – This is a separate loan for building purposes and it allows you to draw out money as you need it, rather than borrowing a lump sum in advance and then paying interest on it right from the start. Some lenders will also allow you to pay the interest only while you’re building. Then once construction is complete you can move onto a principal and interest only loan.
If you’re not overly keen on taking out a loan and you have a redraw facility linked to your existing home loan that has funds in it, then you can use this money to finance your renovations. If you elect to use this option, you need to be aware that this will increase the amount you owe on your home and that your home loan repayments will increase.
If you are making smaller renovations, or are doing renovations over time, then you can use your credit card to finance any changes you are making to your property. Of course, just remember that you’ll need to make monthly repayments on this so that you avoid paying hefty interest charges.
Do you want to know more about home renovation loans? If so, then contact eChoice and find the right home loan for YOU today.