Have you ever wished to transform your property to be more like your dream home, but don’t have the cash to complete the project? Don’t worry, here’s a list of five home renovation finance options to help turn your goal into a reality.

1 Equity Release / Top Up Home 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, as it stands before any value-adding renovations and in most cases allows you to obtain the funds upfront. 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 and of course pro-rata if it’s still mortgaged.

One potential problem is that the cost of your renovations may actually be higher than the equity you’ve got available. If you run out of funds mid-construction, and even worse if the property isn’t in sound, lock-up condition at that point, you may have an issue obtaining extra funds down the track.

2 Construction loan

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 projected end value of your home and take advantage of the current great mortgage rates which are lower than credit card and personal loan rates.

With a construction loan, the lender will assess the value of your home after the renovation based on the submitted building plans. Typically that’s the value you can borrow against.  You generally won’t be given the full loan amount upfront, but funds are usually released in staggered amounts over a period of time. These are called ‘progress payments’ and are linked to the fixed price building contract from your builder.

3 Line of credit

You can establish a revolving credit line when you apply, which when approved you can use up to your authorised limit at any time. You only pay interest on the funds you withdraw and, as you pay off your balance, you can re-borrow the unused funds if needed and without reapplying.

However, you must exercise caution not to get yourself into a position of serviceability difficulties. Ensure that you can make payments on the line of credit so that the principal will be lowered because your minimal repayment only pays interest; it will not reduce the loan.

Rates on this product are typically much higher than a construction loan or top-up loan. This product can be great if managed well but leaves itself open to being a trap if not handled correctly.

4 Personal loan

If you’re only making minor renovations a personal loan might be suitable. These are usually capped at around $30,000 but interest rates on personal loans are higher than on home equity loans. It’s also important to note that payments need to be made usually over a maximum of seven or so years.

5 Credit cards

This option should only be considered if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very minor project, that extra interest might actually total less than loan establishment fees.

One thing you must do

As a rule of thumb, your renovations should add more value to your home than they will cost to carry out. Think about how the money you spend on a renovation will increase the value of your property as well as enhance your daily enjoyment of living there.

If you’ve got any questions about obtaining finance for a home renovation or are gung-ho ready to get wheels turning, get in touch with us here at Grow Financial Solutions and we’ll make the process simple.