Perhaps you’ve bought a ‘renovator’s delight’ or maybe your family has simply outgrown your home and you need an extra bedroom. Whatever the reason, there are a number of different ways to finance your home renovation or home build.
What’s right for you will depend on your preferences, financial situation, budget and the extent of your renovations. Here is a summary of some of the ways to finance a renovation that you might like to consider:
Using your savings
If you have savings that you can dip into to finance your renovation, this could save you paying interest on a loan. If your savings are in an offset account linked to your home loan, consider checking how your mortgage repayments may be impacted before you withdraw the funds to finance your renovation.
Redrawing your money if you’re ahead on your repayments
If you’ve been paying more than the minimum amount on your home loan and you have a redraw facility, you may be able to access extra repayments you have madedisclaimer. There are no fees to redraw from an ANZ home loan and you can easily access your funds via ANZ Internet Banking and other convenient ways. Withdrawing your surplus funds does however mean you’ll be paying more interest.
Using the equity you’ve built up in your current home
If you’ve had your home for a while, you may have equity in your home. Home equity is the difference between the value of your home and the amount you have left to pay on your home loan. You may be able to use this equity to borrow the money that you need to pay for your home renovation.
A home loan specialist can help you calculate how much you may be able to borrow and how much 'usable equity' you may have. The amount you may be able to borrow is generally calculated at a Loan to Value Ratio (LVR) of 80% or less (i.e. 80% of the difference between the bank’s assessment of the current market value of your house and your current home loan balance).
Something to keep in mind is that an increase in your home loan may impact your mortgage payments and the amount of interest you pay on your loan - so you might like to estimate your repayments or speak to an ANZ home loan specialist to find out what they will be.
Some of the ways you may be able to access your equity include:
- Increasing or ‘topping’ up your existing home loan, which allows you to keep the money you borrow consolidated in the one place
- A supplementary loan which is a separate loan that gives you the option to set up your interest and loan term differently than your current home loan
A home loan specialist can talk you through the different ways you may be able to structure your loan and help you determine what the extra payments will be.
Construction loan for a major home renovation
If you’re deciding to knock down and start again, or you’re doing major renovations, a construction loan may be a solution. With a construction loan, the money is released as a series of ‘progress payments’ as your builder finishes each stage of the build. As the payments are made, you will ‘draw down' on your loan and start paying interest only on the amount you have used. By releasing the funds in staged payments, rather than in one lump sum upfront, you’ll only pay interest on the money as you use it.
Personal loan for minor renovations
If you’re considering a minor renovation, you may like to consider applying for a personal loan. They can be a convenient option, but be mindful that often the interest rate is higher for a personal loan than for home loan options.
5 tips for financing your renovation from ANZ home loan specialists
Our home loan specialists can help you find the best loan to suit your renovation plans, and have plenty of tips to help you navigate the renovation process smoothly. These include:
- Fixed price quotes and contracts can help minimise the risks of a 'blowout' in budget.
- If you apply for a loan to fund a renovation, a valuation will be carried out on your property as part of your application, before any renovation begins. This may help you determine what your budget is and how to fund the costs of your renovation.
- Consider whether you’re going to move out of your property and if so, include any rental and removalist costs within your budget.
- Get to know your market and be cautious of overcapitalising.
- Remember to include less obvious parts of a renovation projects such as costs of driveways, landscaping and also a contingency amount in your budget.
See how ANZ could help with your renovation plans
Renovating with ANZ