Renovations can be expensive, so most people borrow money to help fund their home or investment property renovation. Refinancing an existing home or investment property loan to renovate is a common option because property finance has lower interest rates than other forms of finance due to the security that property provides for lenders.
Refinancing your loan to renovate
You can apply to refinance your home or investment property loan to cover your renovation needs with your current lender or with a new one. In essence, you apply to top up your existing loan with the additional amount you need for your renovation work. This increases your repayments unless you extend your loan term.
If or when you decide to refinance, it is important to find the right home or investment property loan for your needs. For example, you may qualify for a loan at a lower interest rate with either your existing lender or a new one. It is worthwhile getting independent professional advice to help you make the right decision. Even a small difference to loan terms and conditions can make a big difference to your repayments.
Other loan for home renovations options
Besides topping up your current loan or taking out a new loan, other potential ways to finance some or all your renovation costs can include:
- Redrawing funds if you have made significant extra payments on your home or investment property loan and it has a redraw facility.
- Accessing the equity (ownership) you have built up in your home over time if you have a home equity or line of credit loan. Your equity is the difference between the current market value of your home and how much you owe on your mortgage.
- For example, if the current market value of your home is $900,000 and you owe $500,000 on your home loan, then you have $400,000 worth of equity in your home.
- Most lenders will allow you to access up to 80% of the equity that you have in your home without the need to pay for lenders’ mortgage insurance (LMI).
- Applying for a construction loan if you are undertaking significant renovations. One benefit of a construction loan is that you progressively borrow funds as construction milestones are completed, rather than borrowing the entire renovation amount upfront.
Benefits of renovating your residential home or investment property
You may need or want to renovate your residential home so that it better meets your current or future needs and/or improves its market value. Renovating your investment property also gives you the opportunity to increase its market value, plus the potential rental income that you may be able to generate. For example, adding an extra room would allow you to charge more rent for an extra tenant, or renovating a kitchen or bathroom may make the property more appealing to tenants and allow you to charge more.
Enquire About Your Lending Options
Whatever renovation financing option you would like to explore, our experienced lending and finance advisor at Wilson Pateras can provide you with advice based on your individual financial needs and goals.
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This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information.