Having a realistic budget and the right financial solution in place are key factors to making your renovation a good investment for you and your family.
Keep in mind the top price of properties in your area and be careful to not overcapitalise
In a hot property market, purchasing a new family home can be an expensive exercise.
Renovation has a number of benefits over buying, so it's a good idea to weigh up what a renovation might cost, how to finance it and how you can turn it into an investment.
If you're looking to add value to your property through renovation, you should be strategic about what you prioritise.
Before you get started, research what buyers are looking for and use your budget to target those areas of the property that will achieve the biggest bang for your buck.
Don't worry – your property needn't be covered in gold – it just needs to be presented as better value for money than comparative properties.
Common ways to maximise the value of your property include1:
- adding a room or creating space by removing walls
- updating the kitchen and/or bathroom
- adding a second toilet or bathroom
- improving lighting and ventilation
- adding storage areas, such as wardrobes
- adding secure car parking
- introducing an al fresco entertaining or dining area.
Renovating to create your dream home is a slightly different prospect, as the value of aesthetic and structural changes are subject to individual taste. People who renovate for this reason rarely do so to make a profit.
Financing the facelift
There are a number of finance options available for renovators, depending on the size and scope of your renovation.
If you already have a home loan with an offset or redraw facility with funds available, consider using it to fund the cost of your renovation, as the interest rate will be lower than obtaining finance through a credit card or personal loan.
Depending on whether you're making structural or cosmetic changes to your home, you might like to consider:
- a home equity loan
- a construction loan
- an offset account
- a mortgage redraw facility.
A construction loan works by allowing you to borrow against the value of the property. In this case, the lender will take into account the value of the property after renovation. A renovation only qualifies for a construction loan where there are structural changes made.
If a valuer determines that your renovations will add $100,000 in value to your $800,000 home, the lender calculates your equity at $900,000 minus your current mortgage. The loan amount is generally released as renovations progress to ensure the funds aren't used for other reasons.
An offset account is an account that operates in conjunction with your home loan. The balance of funds in your offset account is deducted from your outstanding home loan balance, reducing the interest you pay on your loan.
You can access the funds in your offset account at any time through ATMs, EFTPOS, online or phone banking.
For example, if you have $50,000 in your offset account and a $500,000 mortgage, interest is only charged on $450,000. If you then withdraw $10,000 to fund your home renovations, you'll be charged interest on $460,000. So by using funds from your offset account to cover the cost of your renovation, you're effectively paying the same low rate of interest on your renovation costs as for your mortgage.
> Read about the Macquarie Bank Offset Home Loan Package
Mortgage redraw facility
A mortgage redraw facility allows you to access any extra payments you've made over and above your minimum monthly repayments.
By redrawing money already paid into your home loan, you can finance your renovation on the same terms as your home loan.
Whether you're looking for a more suitable home or aiming to make money in a rising property market, planning a renovation is exciting and the temporary displacement is well worth the end result.
We're here to help
For help with financing your renovation project, speak to our experienced team on 13 62 27 today.