Master Your Mortgage: Renovate While Repaying
Have you ever found yourself dreaming about a home renovation, perhaps a new kitchen or an updated bathroom, but quickly dismissed the idea because you’re currently under a home loan? If so, you’re not alone.
Many Australian homeowners share the same apprehension. But what if I told you it is possible, even financially sensible, to renovate your house while you’re still repaying your home loan?
Understanding Home Equity
In the realm of homeownership, equity is an asset, and understanding it is key to seizing the potential of your property.
Home equity is the difference between the market value of your house and the outstanding amount of the loan you have against it.
As you pay down your mortgage or if your property appreciates in value, your equity increases.
Leveraging Home Equity for Renovation
Banks and lending institutions understand the value of a home renovation. Not only can it increase your quality of life, but it also adds to the value of the home itself, an asset the bank holds as collateral for your loan.
In recognition of this, most Australian financial institutions offer options that allow you to use the equity you’ve built in your home to fund renovations.
Redrawing from Your Loan
One of these options is the redraw facility. This is a feature of many home loans that allows you to withdraw any extra repayments you have made over and above your required minimum. This can be a flexible and cost-effective way to finance smaller renovations, as you’ll only pay interest on the additional money you’ve redrawn from your home loan.
Refinancing Your Loan
If you’re planning a larger renovation, you might want to consider refinancing your home loan. Refinancing could allow you to borrow additional money at a potentially lower interest rate. This approach could also consolidate your debts, leaving you with one convenient monthly payment. However, refinancing does come with its own costs, including potential break costs on your existing loan and fees on the new loan, so it’s important to weigh these costs against the benefits.
Construction Loan
Alternatively, you could opt for a construction loan. These loans are specifically designed for significant renovations or building projects and provide funds in stages rather than as a lump sum. This option could save you money on interest, as you’re only charged interest on the amount you’ve drawn down, not the total loan facility.
Investing in your home by renovating doesn’t need to be a distant dream just because you’re under a home loan. The secret is to leverage the options available to you, like redrawing from your loan, refinancing, or opting for a construction loan.
As with any financial decision, it’s essential to seek professional advice and carefully weigh the pros and cons based on your individual circumstances. Reach out to a trusted financial advisor or your lending institution to explore your options further.
Your dream renovation might be more achievable than you think. Don’t let the existence of a home loan hold you back from creating the home you’ve always imagined!
Safeguarding Your Investment
When making the decision to renovate while under a home loan, it’s important to be mindful of the potential risks involved. One such risk is overcapitalising, which happens when the cost of your renovations exceeds the added value to your home. But don’t worry – there are strategies to avoid this.
Home Value Research
Before you start, research property values in your neighbourhood to get a clear understanding of what your home’s market value could be after renovations. This can help you set a reasonable budget and avoid overspending on improvements that might not increase your home’s value proportionately.
Professional Valuation
Consider having a professional valuation done on your home both before and after your renovations. This will give you a precise understanding of how much value you’ve added, enabling you to manage your home equity and loan options more effectively.
Sensible Renovation Choices
Not all renovations add equal value. Some projects, like kitchen and bathroom renovations or adding an extra bedroom, can potentially add more value than others. Keep your renovation choices in line with your neighbourhood standards to ensure a good return on your investment.
The Joy of a Renovated Home
Imagine sipping your morning coffee in a beautifully renovated kitchen or relaxing after a long day in a spa-like bathroom. Renovating your home isn’t just about monetary value. It’s also about enhancing your living experience and making your home a more comfortable and enjoyable place.
In the long run, if planned and executed well, renovations can increase your property’s value significantly. This could potentially give you an edge if you decide to sell or rent out your property in the future.
Exploring your financial options and understanding the potential of your home equity could turn your dream renovation into a reality, even while you’re still under a home loan.
Remember, professional financial advice is key when considering these options. Speak to a trusted financial advisor or your lending institution to understand the benefits, costs, and risks involved.
Don’t let the thought of a home loan dampen your renovation dreams. With the right guidance and planning, your dream home is well within your reach. Step forward confidently and start planning your renovation today!