Six ways to fund a renovation
Whether you want to make a few finishing touches to your home with the help of a paint job or completely turn your home into something new, here are six loan types that can help bring your vision to life.
- Home equity loan
This is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations. You won’t be able to borrow the full value of your home but, without mortgage insurance, you can usually borrow up to 80 per cent of its value if you own it outright. One potential watch-out is that the cost of your renovations may actually be higher than the equity you have available.
- Construction loan
This is similar to a home equity loan, except the lender will take into account the final value of your home after the renovation. You won’t be given the full loan amount upfront, but in staggered amounts over a period of time.
- Line of credit
This may be ideal for ongoing or long-term renovations. When you apply, you can establish a revolving credit line that you can access whenever you want, up to your approved limit. You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying. However, care must be taken not to get in over your head in terms of serviceability – make sure you can make repayments on the line of credit that will reduce the principal.
- Homeowner mortgage
If you’re planning to completely transform your home and undergo a major makeover, this may be a good option as you can spread the cost over a long period of time. You could even possibly borrow up to 90 per cent of the value of your home and take advantage of mortgage rates, which are often lower than credit card and personal loan rates.
- Personal loan
If you’re only making minor renovations – personal loans are usually capped at around $30,000 – this might be suitable, but interest rates on personal loans are higher than on home equity loans.
- Credit cards
This option is only if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very small project that extra interest might actually total less than loan establishment fees.
There are many finance options to help you make your dream a reality, but it’s important you choose the right option for your situation. Contact a Resolve Finance broker and they can help you find the best solution for your project.