How to Finance Your Home Renovation: Complete Funding Guide.

Renovations are so exciting! Stressful of course, but there’s something to be said for having a vision and making it happen. But before dreams become reality there is the first obstacle - funding your project. Unfortunately we aren’t on The Block, so our budget won’t magically appear. Renovations can increase the value of your home but substantial renovations cost substantial amounts of money - so making an informed decision about how to finance your project is essential to make it worthwhile.

First, whether enlisting a builder or going DIY, it helps to really scope out what your renovation is going to cost. After taking into account the cost of your trades, materials and fixtures there are some unexpected expenses that need to be planned for. This includes potential structure surprises, council permit fees, design changes or material changes. Once you have a pretty good estimate, you can make a better decision on which type of finance will be best suited.

So what are your finance options to fund your home renovation?

1. Home Equity Loans

We went into this particular type of loan in a lot of detail in a previous post here. A home equity loan is a type of secured loan where your home equity serves as collateral. It allows you to borrow a lump sum based on the equity you have in your home. Lenders typically allow you to borrow up to a certain percentage of your home's value (often up to 80%, though this can vary by lender and your financial situation) while leaving a portion untouched as a buffer.

Home equity loans potentially lower interest due to the security of the loan. It’s important to note that an equity loan is an additional loan to your mortgage, so be sure that can maintain payments to avoid any future financial complications. But overall, this can be a great option and is often one of the most popular methods to finance a renovation.

2. Refinancing your mortgage

Refinancing involves replacing your existing mortgage with a new one. This can mean changing the term, interest rate, or borrowing more money than you currently owe. It can also be a way to cash out some equity. If you opt for a cash-out refinance, you can take out a new mortgage for more than you owe and receive the difference in cash, which can be used for renovations.

It does mean going through the mortgage application process again and could potentially involve closing costs and other fees. Extending the loan term can also mean more interest paid over time. So like any big financial decision it’s important to weigh up all the potentials.

3. Personal Loans

Personal loans are unsecured loans, generally anywhere from $4000 - $50 000, that can be used for almost any purpose, including home renovations. They’re generally better for smaller projects or when it’s not possible to take out an equity loan, for example if the property is new and hasn’t accumulated any equity yet.

They are a fast and easy application, especially if you have a good credit rating. The downside is they usually come with higher interest rates than secured loans with shorter repayment terms. So the monthly repayments can be pretty high. So, a good option for when you need a new built in wardrobe, but maybe not the best for a substantial kitchen or bathroom reno.

4. Credit Cards

Similar to a personal loan, this is really only suited to minor renovations or to supplement other finance options. For example if you need to buy new tap fixtures because your chosen ones aren’t quite right.

Credit cards offer convenience and immediate access to funds, as wel las some potential rewards, cashback or )% APR periods. However many credit cards have very high interest rates compared to loans, which can significantly and quickly increase the cost of borrowed funds.

Each method has distinct advantages and implications, making it crucial to consider your unique financial circumstances before proceeding.

Some things to consider when weighing up your finance options:

Assess Your Equity: Determine how much equity you have in your home. This is crucial if you're considering options like a home equity loan or refinancing.

Credit Score Review: Check your credit score as it will significantly influence the interest rates you receive on loans. A higher credit score can secure lower interest rates.

Financial Stability: Consider your job security and income stability. Ensure you can comfortably manage the additional monthly payments that come with loans.

Debt-to-Income Ratio: Calculate your debt-to-income ratio to understand how much of your income is already going towards debt repayment. This will affect your eligibility for further borrowing.

How can IDEAL Financial Group help you finance your renovation?

IDEAL Financial Group can provide expert guidance tailored to your unique financial circumstances. Our team can help assess your equity levels and advise on the best types of loans based on your credit score and financial health. No online applications that you never hear back from. No offshore call centres. Real people here to help.

→ Comparing Offers: IDEAL Financial has access to a wide range of lenders and can compare different loan offers on your behalf, helping you find the most competitive rates and favourable terms that suit your renovation goals.

→ Simplified Process: We handle the complexities of the loan application process, from documentation to negotiation, ensuring that everything is straightforward and stress-free.

→ Long-Term Planning: Beyond securing funding for your renovation, IDEAL Financial can assist in planning for long-term financial implications, helping you integrate your renovation loan into your overall financial strategy effectively.

By taking a comprehensive approach to financing your home renovation and partnering with IDEAL Financial, you can ensure that you select the most cost-effective and suitable financing option that aligns with both your immediate project needs and long-term financial goals.

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