You've decided that it's time to give your house a little more TLC, whether it's a makeover or a complete rebuild. However, you may not have the funds available to completely renovate your kitchen or improve your kerb appeal — and that's just OK.
Kiwis adore renovating, and it's easy to understand why. A well-executed makeover can completely change a property and generate significant profits. Plan and spend your money carefully, and you'll reap the benefits in spades.
After you've established an appropriate budget for your repair, remodel, or upgrade, you can explore borrowing and financing options. We've summarised various possibilities for you below.
Refinancing the loan may be an option for people who have built up sufficient equity in their house. This implies you could potentially use the equity in your property to help pay the remodelling by refinancing your loan.
Equity is simply the difference between the market value of an item, such as a home, and the remaining balance on a mortgage. It may be feasible to renegotiate your loan with your bank or locate a bank that offers a lower interest rate or terms, allowing you to get cash for renovations.
If you are able to borrow the funds necessary for the renovation using your current home equity, one option is to raise the loan amount and deposit the remodelling funds in a 100 percent offset account (assuming your home loan has an offset facility). This would eliminate the need for you to pay interest on the excess cash until it is used.
Unsecured personal loan. An unsecured personal loan enables you to fund virtually anything, including a vacation, a car, or home upgrades. These loans typically have higher interest rates and costs than other types of loans, as there is no collateral to guarantee the loan, posing a greater risk to the lender.
Secured personal loan. A secured personal loan enables you to borrow money by pledging a valuable item as collateral. If you're considering home upgrades, you may use your property as collateral or, if you have a mortgage, you can utilise the equity in your home as a guarantee. Simply keep in mind that your equity must exceed the loan amount.
A redraw option enables you to withdraw monies put into your home loan if you require more funds, up to the amount of the additional repayments made. A redraw facility enables convenient access to cash during times of greatest need. This is an excellent choice for modest jobs.
With equity loans, you can determine the amount of equity in your home, which helps you fund your restoration project.
As a result, the amount of financing available for renovations is determined by the amount of equity in your home and the property's serviceability. However, as a general rule, you cannot borrow more than 80% of the value of your property even if you own it outright.
A loan top-up enables you to expand the credit available on your existing home loan in order to finance your refurbishment. It simply taps into the equity you've already built up in your house and returns a portion of it to you, saving you the costs involved with obtaining extra loans from other sources.
Unlike an equity loan, you normally cannot continue to draw interest until the stipulated sum is reached — if you want extra cash, you must apply for another top-up loan. If funds are available, you may be able to borrow a minimal amount, often approximately $10,000.
Whether you've been planning to construct an in-ground pool for years or are suddenly confronted with an emergency roof repair, you have various financing alternatives for home improvements. If you need assistance determining the best financing option for your remodel, contact us for guidance on how to get started.
If you are still a little confused on how to go about financing your next remodeling, contact us and we can guide you to the right resources.
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