When it comes to renovations you can go small and practical on a small budget or big and extravagant that may need an extension on your home loan. You can also DIY or call in a design team and labourers with heavy duty tools.

Whatever your renovation project is, big or small, knowing where you stand financially is essential. There is never going to be a good outcome with, well, let’s just get started and see what we end up with.

Your finances are your responsibility. Own it.

To make your money go a little further here are some smart ways you can finance your renovations.

Pay now, or pay later

You can forgo a loan if you save for your renovation and pay in cash. That can take some time and certainly a lot of effort. The upside to this is you are done and dusted with nothing hanging over your head so you can just enjoy your new space knowing you won’t need to pay interest. You may even get ahead if your workplace has salary sacrifice options that allow you to take out money from your pay before tax. Another bonus is you are more likely to spend your budget and not overstretch your finances.

On the flip side, taking out a loan means you can get those changes installed in your home now, without waiting to save up. It does mean you’ll incur some interest but in some cases it’s a better option than allowing maintenance issues to worsen until you save up for that cash.

Looking for a loan? Here are some options to help finance your renovations

PERSONAL LOAN

Personal loans are great for small scale renovations usually between $5000 to $10,000. The bonus with these is they are quick to be approved, you can usually have your money in a couple of days and you don’t need to have equity to qualify. The downside (and it’s a big one) is that interest rates on these loans is significantly higher than a mortgage and if you can’t make fast repayments, you will be looking at a very expensive renovation overall.

REFINANCE

This is a good option if you are unhappy with your current loan terms or your current lender. You can talk to your current lender as well as their competitors to see what loan might better suit your situation in terms of repayments, fixed or variable interest and the rates, annual loan fees and agreement conditions.

If you go ahead with a new loan you can include the additional funds to complete the renovation as well as any other debts you might have for car payments or credit cards.

The disadvantage here is you may be charged service fees, admin fees and exit fees that are quite expensive so make sure you know all the terms of the agreements and what your lender will charge for an exit to uncover any extra costs.

EQUITY

If you already have a mortgage you can look at the option of leveraging your equity. It simply means that if your property is worth more than your home loan you can apply to extend your home loan again to cover the renovation costs. It will be up to your lender to determine this, although you will probably have an idea yourself of how much has been paid off your home to date.

REDRAW

This is a bit like using any credit you may have gained. You will need to have set this option up beforehand as an agreement with your lender and also have made enough voluntary payments towards your home loan to cover your renovation needs. Redraw payments are those that go over and above what your original payment agreement was. The downside to this is you lose some of the advantage you built from paying your loan off early.

CONSTRUCTION LOAN

A construction loan is ideal for people who are looking at having major (expensive) renovations done. Rather than take out a giant lump sum (and pay interest on it) you can get installments to pay for the work as you go. Most renovation works will call for a downpayment, so you can make this and then pay for the work needed as you go.

These incremental payments are known as progressive drawdowns.

Every situation is unique, bringing in multiple variables from your work position and income, your current debts, your need for renovations and a swag of other factors. For these reasons it’s essential that you get independent financial advice, specific to your situation before making any change to your home loan, increasing your debt or signing financial agreements with new lenders.

Keep an eye out for more blogs in this renovation series!

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