What should you know about a Renovation Loan?

This article explores the benefits of applying for a Renovation Loan sooner rather than later.

Discover why many Australians are choosing to renovate their homes sooner, rather than later.

What is a renovation loan?

A renovation loan is designed to finance alterations and improvements to your home. These loans, also known as remodelling, home improvement, home renovation, or refurbishment loans, allow you to complete your desired project and enjoy the benefits while you repay the loan.

Depending on the size of the renovation and the lender, this type of loan may be referred to as a construction loan. This simply means the lender will manage the disbursement of funds as needed throughout the project, paying the builder in stages. For more detailed information about construction loans, please see our Construction Loan Info page.

Why wait to renovate?

For over 25 years, we have assisted many clients in refinancing their homes to secure more competitive interest rates and save money. Often, these clients are also making additional payments on their home loan with the intention of redrawing those funds later for home renovations or remodelling projects. While the desire to save money and delay renovations is understandable, it's worth considering whether waiting is truly the best option. Enjoying a renovated home may be an option for you due to the long-term nature of paying a home loan. 

What are the pros and cons of a Renovation Loan?

Cost versus comfort: It would pay most people to look at the option of funding their renovation sooner rather than later. This will allow them to enjoy the benefits of the renovation, whilst they are paying their loan, and in some cases without adding a lot to their monthly repayments.

The reason that we say this, is covered in the points below:

• We need to calculate the difference between the loan that you are in now, and the loan that you would receive after refinancing to a more competitive lender with cheaper rates. You may be able to fund your renovation costs and still be paying a similar amount to what you are paying now.
• We also need to calculate the cost effectiveness of consolidating your other smaller debts into the home loan if you have any. This, in addition to interest savings from your refinance, can reduce your monthly payments quite substantially, allowing you to cope better with the added funds of the renovation.
• Once the renovations are complete, you will more than likely have increased the value of your property. This may allow you to consolidate other debts that previously could not be consolidated at the time of application.

As you can see by the points above, you can see that savings can be made in several areas. Surely it would be nice to have your home exactly the way you want it whilst you are paying your loan down?

It's worth considering funding your home renovation sooner rather than later. This approach allows you to enjoy the upgraded space while repaying your loan, and in some cases, without significantly increasing your monthly payments.

Here's why:

• Refinancing to a lender with more competitive rates could allow you to fund your renovation and keep your monthly payments similar to what you're currently paying.
• Consolidating smaller debts into your home loan, combined with interest savings from refinancing, can substantially reduce your monthly payments. This makes it easier to manage the additional renovation costs added to the new loan.
• Completing your renovations will likely increase your property value. This may enable you to consolidate additional debts that you couldn't consolidate initially.
  

As you can see, there are several potential areas for savings. It may be possible to have your home just the way you want it, while paying down your loan.

If you still have questions please contact us and we will help guide you, no cost associated at all, a free service for all non-commercial home loans. Call Illawarra Mortgage Brokers on 02 4257 5626.