Whether the needs of your family have changed or it’s time to repair some of the wear and tear your home has endured over the years, there are several reasons for wanting to renovate a property. However, most people end up delaying renovations while they are still paying off their home loan.
Getting the money together to finance a home renovation may seem difficult, but it doesn’t have to be. There are several ways you can fund your project, even while you are under a home loan.
Use your home’s equity
Over time, your home’s equity builds up, either because you’ve reduced your loan balance or because the property has increased in value. In some instances, you can use the equity in your home to either redraw on your existing home loan or opt for a home loan top-up.
Redrawing usually is quite easy to do, and essentially means you redraw the additional payments you have made on your mortgage, which can then be used to pay for your renovation.
Topping-up your home loan means borrowing extra funds on your existing home loan, without the need to take on a separate loan. Again, this could be another easy option to fund your renovation project. However, it will mean adding to your original debt, which means you may take longer to pay off your loan so that you end up paying more interest.
Refinance your credit
Refinancing your existing mortgage could be a good way of getting some extra funds for your renovation project. Take the time to review your home loan and see if there is a better choice out there to suit your needs, whether that’s looking for a deal with better features or a lower interest rate.
Checking in with your loan officer on a yearly basis is a good idea, either way, to ensure that you’re not missing out on a better deal. If you do decide to refinance your mortgage, don’t forget about the fees involved with going down this route.
Get a construction loan
If you’re planning on making some significant structural changes to your home as part of the renovations, then a construction loan may be a good option. These are similar to home equity loans, but the amount you can lend will be based on the predicted value of your property following the renovations.
Construction loans tend to be granted as a short-term loan and are a bit more difficult to come by. Rather than getting access to the money all at once, you would receive the loan in increments, so you pay invoices as they come in. The benefit here is that you don’t have to pay interest until the work is actually complete.
Use a line of credit
Just because you’re planning a renovation doesn’t mean it has to involve making big changes. If you’re planning something smaller, then a good option may be a line of credit loan, or home equity line of credit (HELOC).
This type of finance allows you to access funds as you need them, using your property’s value as collateral. The good thing is that you typically pay lower interest rates than on other types of loans and will only be charged interest on the amount you have used.
The downside is that the interest rate is usually higher than standard home loans and it could leave your house at risk if you delay or stop payments altogether. When using a line of credit, you will need to budget well and make sure you can afford your repayments.
Consider a personal loan
If the above options don’t work for you, then you may need to seek out other financing options. A personal loan is best used for smaller renovations that don’t require significant expenditure.
You can either get a secured personal loan, which is secured by an asset or take out an unsecured loan that is not tied to any assets at all. If you default on a secured loan, then the lender can take possession of that asset.
Since these loans are generally processed quite quickly, they can be a very convenient option. However, either type of loan will typically have a higher interest rate than mortgage products, although they may be lower than credit cards, and secured loans will have lower rates than unsecured loans.
If you take out a personal loan, be sure to compare your options, as rates can vary significantly between lenders, and don’t forget to take into account all the fees involved, including application and annual fees.