There’s more than one way to finance your home renovation.
Between ferrying the kids to and from school, running errands and trying to keep the household in a state of organised chaos, you might start to image what your home would look like with some new windows. Or maybe you’re dreaming about a bigger bathroom, which will make the morning rush a little less frenzied.
No matter the size of your current home, or the state of it, you’ve probably been imagining some upgrades which will make your abode more liveable for the whole family.
Despite the complexity of your renovations, coming up with the resources to make it happen can seem overwhelming. Whether you lack the available cash for your renovation, or simply don’t wish to tap into your savings, financing your home renovation is something to consider.
Fortunately, thanks to remarkably low interest rates, now is a great time to renovate your home.
Renovating is a great alternative if you’re not yet ready to purchase a new home.
Whether you’re looking to add a lick of paint and do a few small repairs, or undertake a major renovation, there are a number of options available to you. Here, we take a look at some of the alternatives, from choosing a bank to picking a loan type, and more.
While your mortgage might be tied to one of the ‘Big 4’ banks, and you may be enjoying a record-low interest rate like many Australians, there is no reason that you can’t shop around for renovation financing. Depending on your individual circumstances, looking beyond the major financial institutions could be the solution to affordably financing your home renovation.
Credit unions and building societies
Credit unions and building societies, just like banks, are licensed to lend money for things such as home loans, personal loans and more. The major difference between banks and credit unions is that credit unions are owned by their members. Rather than answering first and foremost to shareholders, credit unions are focused on providing the best returns and offering the best products for their members. While this does not always mean a cheaper lending rate than a bank, it is certainly a possibility. If you’ve never borrowed from a credit union before, it is worth taking a look at the options in this area, and obtaining some quotes. You may just find that a credit union can offer you a more competitive rate than your current financial institution.
There is a very good reason that the majority of Australians choose to bank with the ‘Big 4’ banks. Because the banking and finance sector is so competitive, banks are always at pains to attract customers with the most appealing offers. Simply consulting a range of banks and enquiring as to the best rate they can offer, can see you saving thousands over the life of your loan. Be sure to consult your current financial institution and let them know if you’ve received a better offer elsewhere. You might be surprised at what they’re willing to offer you in return for keeping your business.
Financing options in Australia are many and varied, thanks to a deregulation of the industry in recent decades. Nowadays, beyond your banks, credit unions and building societies, private lenders are able to offer Aussies financing solutions which are not only competitive in rates, but in lending options. Non-banking lenders often have a more limited service offering than the banks, however provide credit and loans for people who might otherwise struggle to obtain a loan from a traditional institution. These might include low-doc loans (for small business owners, for example) or ‘bad credit’ loans. Whatever your personal circumstances, there is more than likely a lending institution who can offer you a suitable financing option for your home renovation.
Taking your home from drab to fab is an exciting process. Planning a renovation is both thrilling, and daunting, and there are many factors to consider. Choosing the best way to finance your renovation will depend heavily on your individual circumstances, but here we aim to help you with the decision by outlining some of the options available to you.
Use the equity in your home
If you’ve owned your home for a number of years, or have worked hard at making extra repayments to reduce your interest over time, you may have built up a sizable chunk of equity in your home. Like many Australians, you might also have benefited from rising house prices is some of the country’s burgeoning housing markets. The equity in your home equates to the difference between the bank’s valuation, and what you owe on your mortgage.
Keep in mind: Using the equity in your home to finance your renovation will depend on what you can afford to repay. While you may have over $100,000 in equity, this does not necessarily mean that you’ll want to borrow on that whole amount. Consider the cost of borrowing against your equity, and ensure that you’re comfortable with the new repayments before proceeding.
Redraw from your current home
Depending on your financial institution and the type of loan you have, you might have access to a redraw facility. Without the hassle of applying for a new loan, or refinancing your current loan, you may be able to quickly and easily redraw on your existing mortgage to begin your renovation project. Keep in mind that the amount of interest you’ll pay will increase, and your repayments may also increase, as a result of redrawing.
Refinance your existing loan
If your existing home loan does not have a redraw facility, or you’ve found that you could finance with a different lender for a better rate and incorporate your renovation costs, you might choose to refinance. This may mean moving to another bank or financial institution, or simply switching loan types with your bank. Once again, this involves shopping around for the best rate on offer, and considering which extra options (such as redraw facilities and other bonuses) are available.
If you’d rather not tamper with your existing home loan, or are unable to do so, you can still finance your renovations with a personal loan. Many home owners choose this option because they don’t have enough equity in their home, or don’t have access to a redraw facility. A personal loan is a great option for smaller renovations, and can be applied for once you have an estimate of the amount you’ll need.
Line of credit
While complex in nature, a line of credit is an option that some financial institutions will offer, which allows you to access funds as and when you need them. Rather than paying an interest rate on the whole loan amount, you pay only on what you owe on the balance of the finance. This kind of credit usually doesn’t involve fixed repayments, and so it is important that you keep an eye on what you owe and what you still have available to you. The bank or financial institution might cancel or restrict your line of credit at any time, so this option is generally more attractive for those who expect to quickly pay off their renovation loan, but don’t have access to all of the cash immediately.
Building and construction loan
Many financial institutions offer something called a ‘building and construction loan’. Just as with a line of credit, this type of loan allows you to access the funds as you need them, and your interest will increase as you draw down more on the loan. The benefit of this type of loan is that often, you’re able to make interest-only payments while your renovations are still underway (leaving you with more disposable cash during this time). So long as you keep your financial institution informed of your progress, and keep an eye on the amount of interest you’re liable for, this kind of loan can be a great way to tackle a larger renovation and get moving quickly.
If you’re hoping to get started on your renovations quickly, and either don’t have the time or the access to other finance options, you might consider using a credit card. It is very important to understand your interest rates and repayment obligations when using a credit card, as these can often far outweigh the cost of another loan type. Despite this, using a credit card for smaller renovations, which you are able to pay back quickly, can be a great way to get started on your renovations immediately.
No matter what your financial situation, there is likely to be a finance option available to you which will help you get your renovation project under way. Be sure to consult with your financial advisor, and legal representative where possible, to receive some objective advice about your circumstances and financing options.
We all know that a fantastic home renovation can add value to your home. But what happens when a renovation is done badly? As a builder that specialises in renovations, Steve Burke from Amerex Renovations and Additions says ‘one of the first things that I do before I start a major home renovation, is to remove any shoddy handyman work and start with a clean slate.’
So how can you avoid making costly mistakes when renovating? With 40 years of experience in construction and 20 years of experience in renovations, Steve has put together the ten most common mistakes that he sees being made over and over again. Make sure that you do not make these mistakes!!!
1. Ignoring Existing Issues
When you tear down walls or rip up floors in an older home, there is the chance that you will find something unexpected. It is always better to address these issues straight away. This is particularly the case with electrical and plumbing issues. In the short term this can be unexpected additional cost, but as a general rule, the sooner you fix a problem, the more you will in the long run.
2. Going for the Cheapest Builder or Trade
Using the cheapest Builder or selecting the cheapest quote for a trade may save you money now, however, this almost certainly will come back to bite you in the long term. You need to ask questions such as: Why are they cheaper? Are they using cheaper quality materials? Has everything been included in the quote, or are there exclusions that will cost you extra as the job progresses? Do they have enough experience in what I need them to do? Are they able to provide references so that I can check on the quality of their work with previous clients?
3. Buying Cheap Fixtures
Saving a few dollars in the short term may not be wise in the long term. Consider investing on quality fixtures such as selections in your kitchen and bathroom. Items that are used often are worth spending on to get a quality product. Quality choices will mean less repairs and replacements, and they will fare better in terms of wear and tear in the long term.
Quality materials and products also often have additional features that make living easier, making them worth the cost.
4. Terrible Painting Skills!
A home renovation that has been finished off with good quality painting can be a joy to behold. On the other hand, poor quality painting can absolutely ruin a beautiful home. There is more to painting than many people realise. A home with walls that have not been prepared properly, or have paint drips, uneven coverage and brush marks, not to mention poorly executed ‘cutting-in’ can look amateurish at best. If you can afford it within your budget, I would recommend a professional Painter to get the quality finish that your home deserves.
5. Going for the latest gimmick or fad items
Beware gimmick purchases or luxury end items that are unlikely to get much use. A great example of this is a pot-filler. A what? A pot-filler is a faucet installed on your stove top so that you can fill a pot of water without having to carry it from the sink. These peaked in popularity in the United States approximately five years ago, and have steadily fallen from favour.
6. Buying expensive Bathroom Tiles
Bathroom tiles do not need to be expensive to look good. A good tiling company or interior designer should be able to assist you with a great design, pattern or colour to match your taste, without costing you a fortune. Save the money and spend it on good quality fixtures instead!
7. Be careful buying Clearance Stock
Clearance stock for appliances or materials such as tiles need to be purchased with caution. If appliances are the last remaining items they may have been on the shop floor for a while. As a result, there may be scratches, minor faults or parts missing that could be difficult to replace.
With materials such as tiles you will need to ensure that you have enough stock for all the areas of your home.
You will need to allow extra for wastage as you may not be able to order again from the same batch of stock. With materials such as tiles this can be an issue as it is common for different batches to have significant colour variations. This can be disastrous for your end result with mismatched tiles ruining your final look.
8. Not creating enough storage
Build in storage wherever you can manage, there can never be enough. If you are building a second storey, talk to your Designer about utilising the space under the stairs. In the kitchen, there are many nifty inserts that will allow you to use space even in the tightest corner. In bedrooms, create walk-in robes or build in cupboards. Where-ever you can find a space for more storage, do it, and thank yourself later!
9. Using Your Friend, Cousin, or mate as a Trade
So you have a friend or member of the family who can help you out. Perhaps they are a Plumber, Electrician or a Carpenter. Many homeowners are budget conscious and getting family or friend to help out can sometimes save money.
However, there are many pit-falls in doing so. If you are aware of the potential problems before you start, then you will be going into the arrangement with your eyes wide open!
First and foremost, ALWAYS ensure that you use a licensed professional for trades such as electrical, plumbing, asbestos removal and anything to do with gas or the structure of your home. Secondly, even if you know them, you MUST check that a trade has the necessary insurances in place. Failure to do so will leave you potentially liable if an accident occurs.
Last but not least, think about whether you will be able to get them back when you are unhappy with the quality of the work. Could unsatisfactory work lead to a break-down in your relationship with them?
10. Unfinished Work
We all know someone who has started a home renovation and has spent years working on it. Their home always looks like a work in progress and there never seems to be an end in sight! While DIY can be a hobby for some, it is also nice to live in a renovated home and to enjoy the features of the renovation.
Don’t fall into the trap that many do, where they only decide to finish off their renovations only when they decide that it is time to sell their home. This means that they only got to enjoy the full potential of their home briefly, just before selling!
About the Author
Suzanne Burke is the General Manager at Amerex Renovations and Additions. Amerex is a Perth based award-winning building company that specialises in home renovations, extensions and second storey additions. Suzanne and Steve Burke (the Managing Director of Amerex), will soon be releasing a book – Nail Your Renovation without Getting Screwed – to share their experience, insights and knowledge of the home renovation industry with homeowners Australia-wide.