Renovating a home or investment property has become a savvy way to add value to your Mount Gambier property portfolio. ‘Renos’ are no longer just a job to get a builder to do – it’s become a real lifestyle, as evidenced by the plethora of television shows and series now dedicated to covering the process of fixing up, doing up or ‘flipping’ property.
But while renovating is a good way to create value in your home or investment property, it will always be something that will need you to produce collateral up front if you want to do it properly. But financing an established property is very different to financing someone’s ‘one-day-it-will-be-established‘ property.
So, what’s the right loan for your renovation? The right loan choice will depend on where you’re at financially and what you’re hoping to achieve. For example, the finance we recommend for those renovating their own home may be different from what we’d suggest for those renovating a longer-term investment property, or those flipping for profit.
There are several options. Which one suits will depend on factors such as:
- The size of your renovation project
- Your budget
- Your financial circumstances
- Your goals
Sinclair Wilson’s mortgage broking team are experts when it comes to helping you choose the right loan for any renovation. Some of the finance options that will serve as a solid foundation to your renovation dreams include are listed below, to help give you an understanding of what’s on offer.
1. Line of credit
This is an option that’s well-suited to the longer-term, steady-as-we-go renovator. It’s a little like having a credit card. You apply for a line of credit against your home, with an approved limit, then use the funds as needed, drawing down as necessary.
The benefit of this approach is that you only pay interest on the money you use, and you can pay off the balance as you go, then use the funds again later for the next stage of your renovation. If you want the freedom to pay tradespeople or buy materials whenever you need to, this is certainly one to consider.
2. Personal Loan
If your renovation costs are relatively small, or you have a plan to pay the loan off quickly, a personal loan could be for you. With a personal loan, you can secure the finance against an asset, such as property or term deposits, or opt for unsecured finance without collateral – although this is typically an option that comes with a higher interest rate. The application process is usually quicker than for a home loan and the money is deposited into your account for you to use as required.
It’s worth remembering that interest rates on personal loans are usually much higher than home loans. Sinclair Wilson’s mortgage team has access to competitive rates, so there are ways we can potentially help you save. Depending on how and when you plan to pay back the loan, you can choose a variable or fixed rate option. Many personal loans allow extra repayments so you can pay it off sooner and reduce the interest you’ll have to pay, so talk to us about the right one for your needs.
3. Construction Loan
Is your renovation dream a fairly big one that warrants employment of a builder or expert trades team? A construction loan might be something to think about. A project suited to a construction loan could include anything from a small extension to a complete knock-down and rebuild.
With a construction loan, the lender will use the final value of the property post-renovation to calculate how much you can borrow. Once approved, you can draw down periodic progress payments at different stages of construction.
For several reasons, a construction loan offers significant benefits for larger renovation or building projects:
- You only pay interest on the money you draw down.
- The payments are interest-only during construction.
- Each stage must be inspected and completed before you can draw down the funds for the next stage. This helps to keep your builder on track.
- The loan converts to a home loan of your choice after construction is completed.
4. Refinance to access equity
When you refinance your home loan to access your equity, you end up with a sum of cash to use as needed or to finance your renovation project. Refinancing your home loan could be a good idea if you’re ahead on your loan repayments, your property’s value has increased, or you’ve paid down your home loan considerably since you took it out. Keep in mind that this option will not suit your needs if your property’s value has, or is at risk of falling, or your financial circumstances have deteriorated since you purchased the property. Again, your mortgage broker can help determine if this option suits your circumstances or not.
Refinancing may also allow you to access other useful features such as a line of credit, or a redraw facility – which could be useful if your renovations are ongoing. It’s important to remember you may not be able to access all your equity – so talk with us and we’ll help you work out your borrowing power.
What’s right for you?
Whether you’re planning to make a few cosmetic improvements or give your property a complete overhaul, chat with us about the finance side of things. We can help identify an option that is the perfect fit for what you are planning, AND what suits your personal circumstances.
Contact our mortgage broking team today for a discussion.
