Renovation loans

Bored of your home environment? Craving a little pizzazz in your humble residence? Want to change things up a bit? You’re not alone! If you believe that your home should be your castle, and you don’t feel like moving to Scotland to find a proper one, turn your very own abode into the home of your dreams instead!

You don’t have to sell up and buy a new home to have that new home feeling again either. And there’s only so much a new rug can do. But to renovate...that’s another ball game! It means you can stay exactly where you are while you continue to build on your homely dreams and memories for years to come.

Is renovating cheaper than buying a new place?

Think about what you’ll be saving: Everything from real estate agent fees, relocation costs, stamp duty, the list goes on! In Mozo’s humble opinion, if moving house is not essential for work or school, then you’re much better off renovating your existing home.

Not only will you be saving money on sale fees of your existing home and stamp duty costs of a replacement home, but renovating and staying in your current home means that you will potentially add value to your property, making it worth much more in the long run. Bonus!

I want to renovate - is there a loan for that?

Absolutely. Financial institutions know all too well the value of renovating your property. And if your property is already security on your mortgage, they’re probably more than happy to accept an extra renovation loan.

Suitable loans for renos come in all shapes and sizes. They may be called: home loan refinance, top up or line of credit for more substantial amounts. For smaller renovations, you may think about a small personal loan or even a credit card. It all depends on how much you need and what you want to create.

Renovation loan types

Each lender may identify loans suitable for renovations with a different name. If what we explore with you today doesn’t sound familiar, ask your lender to see what they’ve got on offer.

Home loan refinance: Now’s a good time to review your home loan to see if it’s still working for you. Sometimes called a mortgage ‘health-check’, you can assess if your loan is still satisfying your needs. Happy with the interest rate? Remember, there’s always room for negotiation. And if your lender has become too complacent, consider moving your business elsewhere. See here for information on lenders that offer refinance home loans.

Home loan top up: This is a great way of getting a whole wad of cash on the side without having to go through all the paperwork. Essentially, ‘topping-up’ on your existing mortgage, you’ll not only save time but may even be able to take advantage of a lower interest rate for the amount you need to renovate. Ask your lender and find out today.

Line of credit: Access to your own money? Fantastic! Well it’s access to the equity in your home. You’re probably already aware, that as you pay off your mortgage, you build on what’s called ‘equity’ in your home. That’s the accumulated amount that is deducted form the bulk of what's owed. The great thing about it, you only have to pay interest on the amount that you use, not the whole amount. so you can budget around your renovation and complete your project in stages if you wish.

Personal loan: If you don’t want to use the equity in your home, you may want to consider another means of borrowing money for your renovations such as a personal loan. With a personal loan you’ll have flexibility to cap the amount and set a strict deadline for paying back the renovation. A personal loan is a good option for renovation projects between $15,000 - $30,000.

Credit card: Now we’re not discounting the extent of your renovations, but if all you want to do is change the kitchen bench tops and cupboards or build a new deck, then you don’t have to fuss about with a large loan to deal with your renovations. You may want to consider a low interest credit card or a card with a 0% purchase rate offer. Some credit card rates are comparable with personal loans and if you can get a 0% deal, you won’t need to pay any interest, as long as during the interest free period you’re good at savings up the money to pay for the reno so that you can pay the balance off in full at the end of the project.

What do I look for in a renovation loan?

If you are opting to take out a personal loan for your renovations you should consider the following:

• fixed versus variable interest rate: if you want to ensure that during the time you are paying back your loan that your repayments stay the same, then a fixed rate deal will be best. Variable interest rates are generally lower but you have the risk that your repayments could go up during the renovation loan term.
• comparison rate: be sure to use the comparison rate to compare loans as this takes into account fees and interest rates to help you understand the true cost of a loan.
• flexible features: Can you make free extra repayments? Or does your loan offer a redraw facility? Generally variable rate loans have more flexibility and while you can generally make extra repayments with a fixed loan, there are usually limits on how much over the renovation loan period.

The Reno repayment plan

This is where you can think about your short and long-term goals, plan ahead and try and unravel the best possible way to repay your renovation debt. To work out how much your repayments will be try Mozo’s personal loan repayments calculator. It will tell you how much your added monthly repayments will be and how much interest you are likely to pay over the duration of the renovation loan. There are some things you may want to consider as part of your repayment plan to help you to save on interest like:

• Increase your repayments You may be thinking: why on earth would I do that?! However by increasing your repayment amounts, beyond the minimum, you could shave a good number of years off your loan. Wouldn’t you prefer to use your money in other ways that repay a loan off for what seems forever?
• Offset your loan with a savings account Nothing wrong with utilising your savings for offset your outstanding debt. Sure you could use it to buy something….or you could let it sit in an offset account that earns interest while you repay the your balance. And shaves off a whole lotta debt. It’s kind of like assurance from the bank that you mean business, and you’re not fleeing the country. They’ll have tabs on you, but you’ll be saving thousands of dollars. It’s a win win in our opinion.
• Lump sums Expecting a handsome tax return? Got some loot coming in from wedding gifts? Sold your collectable car that you stopped driving years ago? Then pop it on your mortgage! dropping lump sums into your debt can shave years off your loan. Remember, the less you owe the less you pay!

Can I stop at one renovation project?

Setting your renovation budget is purely subjective. You need to decide what you're renovating priorities are and if any afterthoughts are worth investing in. If your original plan is to convert the back patio to a third bedroom, then that’s a good start, and possibly the end for now. But if you start opening your mind to more wonderful ways you can utilise space in your home, it may add a financial burden you hadn’t planned for.

Mozo suggests mapping out a long term plan for your renovations so that you can avoid any spontaneous creativity and expenses. One project at a time makes it more manageable financially and less disruptive living quarters.

Renovate for profit

When we normally think about renovating our home, we’re envisage the new environment and how lovely and peaceful it will be. A new reading nook, a bigger living space, the options are endless. But did you think for a minute that a reno will potentially increase the value of your home? Yes please!

You may not want to sell just now, but it’s great to know that your planned renovations are not in vain and will benefit you in the long run. Here are some ideas to get you started:

• fresh coat of paint, inside and/or out
• cement rendering the outer shell
• upgrading the kitchen and/or bathroom
• remove a few walls for open plan living
• professional landscaping
• add a granny flat.

Go Pro or Do-It-Yourself renovation

The age-old conundrum. Do you hire a professional team of tradespeople or do you take on the renovation yourself?

With so many DIY home renovation reality TV shows trending, you’re forgiven if you think that renovating is possible. Ok, no we said that wrong. Renovating is possible, but getting the desired result is another thing altogether.

DIY renovations means that you’re genuinely taking a risk and may end up paying double if not more to rectify your errors. It may pay to have a professional look at your job, giving you more time to to plan your wonderful visions instead.