Whether you are constructing a new deck, refurbishing your kitchen or bathroom or even adding an entire wing to your home, determining how to finance a home improvement project is essential.
And if your savings are insufficient to cover the cost of the project, where do you intend securing the funds from?
The good news is there are a host of financing options you can consider depending on your budget and how big or small your renovation plans are. Here, we’re looking at some of the best options.
Use your equity
Home equity is that share of your property that you truly “own.” If you have borrowed funds to purchase your home, then your lender also holds an interest in your home until you pay off the loan.
Equity is calculated as the current market value of your home less any amount you still owe on your mortgage or other liens. Mortgages pertain to any loans you took out to buy your home plus any subsequent mortgages that were taken out post that.
For example, if your property has a valuation of $500,000, and your mortgage is $300,000, and you don’t have any other liens on it, then the equity you hold in your home is $200,000.
Typically, banks won’t lend you the full amount of your equity, but they might let you borrow up to 80% of it. Taking out home equity loans is one of the most common avenues Australians employ to finance their home remodelling projects.
Refinancing your existing home loan
Another avenue you could consider to finance your renovations is by refinancing your mortgage. It’s advisable that you scrutinise your home loan once every few years to determine if it still suits your requirements because you might find a more competitive deal with another lender.
One of the main benefits of refinancing your mortgage is you could gain access to a lower mortgage rate, which will decrease the overall cost of the loan. In turn, this will result in considerable savings for you. In essence, refinancing could help you free-up some excess cash, thereby providing you with sufficient finances for renovations, minus the strain on your family’s budget.
Secure a personal loan
Depending on the size of your renovation, there are two types of personal loans you might want to consider. The first is an unsecured loan, which is better suited to small-scale remodelling projects. Since these loans don’t require any collateral, lenders usually issue them for smaller amounts, which could range from 5,000 to 30,000 AUD. While the period of these loans could typically be anywhere between one and seven years, the interest rates can be quite high because they are unsecured.
On the flip side, if your renovations are on a larger scale like constructing a new wing or redesigning your bathroom and kitchen, then a secured personal loan might be the better option. With bigger borrowing limits and long repayment periods, secured loans also offer lower interest rates than unsecured financing options. That said, the interest rate on secured loans remain pretty steep and in all probability, will be more than the rate you pay on your mortgage.
Use a line of credit
Another very common method of funding home renovations is through a line of credit. Fast and simple, it functions as a revolving loan facility. Once you have a line of credit set up, you can access the funds whenever you want. So, regardless of whether you require the finance in one big lump sum or in smaller batches to pay for materials and labour as the project progresses, this flexible funding solution is ideal.
Securing a line of credit from &Solved is a great option for financing your home remodelling venture. Thanks to personal lending assessments during the application process, the company designs highly customised borrowing limits and interest rates to suit your specific requirements.
The biggest advantage of a line of credit is that you only pay interest on the amount you borrow. Plus, if you manage it well, which means paying a minimum of 3% of the outstanding balance every month, you can continue using the same credit line for years. In turn, this will build your credit score as well because you won’t have to repeatedly apply for alternative finance.
Regardless of how small or big your home renovations are, a line of credit is a smart way to go. So, get in touch with &Solved to find out what your best financing option is. With a line of credit, you will have that indispensable peace of mind knowing you can exercise flexibility and control over your funds you borrow.