Many Australians are choosing to renovate their homes rather than selling and purchasing a new property. For many, this is because they love their home and simply feel it is time for a new look, others love the area but need a little more space. Regardless of the reasons, most homeowners have to apply for some type of renovation loan in order to proceed with their plans.
There are many different ways to secure loans for renovations, and we have put together a list of the most popular methods and some information about them.
Taking Out a Home Loan for Renovations
One of the most common ways to finance a renovation is to take out a home equity loan. With this type of loan, the homeowner borrows money against the value of the property. For example if the home is worth $500,000 and your mortgage is $300,000, you have $200,000 equity in your home.
However, most banks will not allow you to borrow up to the full value of your home. In most cases, a bank will loan up to about 80% of the value of the home for renovations. While this may be enough for many types of renovations, if you are planning to do anything major you may want to consider a different type of loan to renovate your house.
A construction loan works in much the same way as a home equity loan, except with a construction loan the bank will consider the finished value of the home when deciding how much equity you have in the property. Using the previous example and a home worth $500,000, if your planned renovation is going to cost $200,000 to finish, the bank would value the home based on the completion value of $700,000.
You would still only be able to borrow up to 80% of the value, but it would amount to much more than you could borrow with a home equity loan.
However, construction loans do come with a few restrictions. The bank will not give you the full amount of the loan at one time; instead, it will release the funds in stages during the renovation process. This gives the bank additional control and security in knowing that the funds are increasing the value of your home and not being used elsewhere.
These are the two most popular types of loans to renovate a house. Other options include taking out a personal loan and using credit cards.
If you are planning to renovate your home and need a renovation loan why not try our Tradebusters Connect local directory service to find mortgage brokers in Sydney that can help with the loan process. We have hand-picked just three of the best mortgage brokers in your area and they are ready to speak with you today.