With the popularity of TV shows like The Block and My House Rules, property renovation is very popular. A renovation done well can not only improve your standard of living, it can dramatically increase the value of the property. Renovations can come at a significant cost, and therefore you may need to consider refinancing your assets to renovate your property.Refinancing is not as straightforward as you might expect. The type of renovation proposed goes a long way to determining the loan required.
Know Your Budget
Before considering refinancing, you need to have a clear idea of your budget. It is easy to underestimate your budget when you commence, however, there is a real trap that as the renovation progresses, changes are made to the original design, which although may improve the overall outcome may come at an extra cost.It is important to get the loan amount right at the beginning, as banks do not look favourably at increases in the loan amount. The next step is for us to get together to determine which loan will suit your needs and objectives.
Line of Credit loan
Also known as an equity loan, these are for renovations when you are doing cosmetic upgrades to your property. Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan. These renovations usually do not exceed the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR). A line of credit loan combines your home loan, daily spending and savings into one loan.
To calculate the value you can borrow, work out what 80% of your property value is and then subtract your current loan balance from this amount. For example, if your property is worth $700,000, 80% of this amount is $560,000 and you have $450,000 left on your loan, your home equity is $110,000. If you’re uncertain of your home value, contact your broker at Dominion Finance and we can assist you to arrange for an appraisal of your property. A line of credit home loan essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down.
Construction Loans
Construction loans are suitable for structural work in your home, for example, if you are adding a new room or making changes to the roofline. Construction loans allow the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed. The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you have spent. When applying for a construction loan, council approval and a fixed price-building contract are required. Your Dominion Finance broker can assist with this process. Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalments to your builder. When construction is complete we can discuss refinancing you to the most appropriate loan for you.
Our advice
We are here to achieve the best possible outcome for you by determining the best loan for your purpose and budget. All loan scenarios are unique and it is important to take in all factors of your financial situation when we sit down to assess the best loan for you.
