What types of home improvement finance are available?
If you're looking to improve your property, you have a few different options when it comes to financing. Consider carefully which type of loan could be best for your circumstances:
Unsecured personal loan.An unsecured personal loan is simply a loan that you can use to finance anything you like, such as a holiday, a car or home improvements. These loans usually come with higher rates and fees than secured loans because they are not secured against an asset, making them a greater risk to the lender.
Secured personal loan.A secured personal loan lets you borrow money by putting up an asset as a guarantee. If you're looking at doing improvements on your home, you can attach your house as security. If you have a mortgage, you can use the equity in your house as a guarantee. Just remember the amount of equity you have has to be more than the loan amount.
Mortgage finance. If you already have a mortgage, you can often increase the amount (or re-mortgage) to finance home improvements. If your home loan has a redraw facility and you've made extra repayments, you may also want to consider using that to fund your renovations.
Tips for comparing home improvement loans
When comparing competing loans, consider the following features and how well they meet your personal requirements:
Loan type. The type of loan you decide to go with should meet your needs and situation. For example, if you have a high interest rate on your home loan, you may want to opt for a personal loan with a lower rate rather than adding on to your mortgage. However, having only one payment to make might be more convenient to you.
The purpose of the loan. Make sure you will be able to access the funds when you need them and that you will be able to use the funds for your renovation. Some loans are specifically designed for renovation purposes and so come with flexible features, so you may want to consider this as an option.
Loan costs. Consider your upfront and ongoing fees as well as your rate when looking at your loan costs. A lower rate doesn't necessarily equal a cheaper loan.
Repayment options. You should ensure that the lender offers repayment options that suit your desired payment frequency and income. For instance, if you are paid monthly, you may want to opt for a lender who will let you make monthly repayments.
Flexibility and extra features. If you are looking for any additional features that you have seen being offered by other lenders, choose a loan that will give you these.
What types of home renovations can you do?
Renovating a home can be a daunting task, given that there are so many options. Begin by identifying exactly what you want to accomplish – be it changes to styling, structure or functionality. You can choose to make renovations to your bathroom or your patio, or you could even add new rooms to the building. You could also decide to do some landscaping.
The improvement of space and the addition of amenities can include building or improving outdoor living spaces, adding storage space or even relocating or modifying your laundry space. You can also experiment with furniture layouts that use space more efficiently, renovate your kitchen to improve safety or make aesthetic changes to your bathroom.
Can I make my home more energy efficient with renovations?
Installing solar or energy-efficient hot water systems can make your home much more energy efficient, and if your home doesn't have suitable solar access, you can think about getting an active solar heating system. Try to improve the flow of natural light and use LED lighting to replace low-efficiency lighting.
You can also choose to improve your home's heating, cooling and air quality. This aspect can be tricky and involves paying attention to windows and glazing, ventilation, thermal mass and insulation. You might want to turn to a heating and cooling system that comes with high energy-star ratings.
It is worth noting that there are types of loans, usually known as "green home loans" that are specifically designed to help you make your home more eco-friendly and energy efficient. You may find that these loans have lower rates than typical home improvement loans, but they will likely come with a specific set of requirements in regard to the eco-management of your renovations.
Will renovating my home add value to my property?
Renovating your home can, and often does, add significant value to your property. However, it is worth noting that not all renovations are created equal and not all will add value. Some "improvements" might in fact make your home lose value.
Before you begin renovations, establishing the purpose is very important. Do you, for instance, want to improve your home to enhance your lifestyle? Do you want to make more money from renting it out? Do you plan to sell it and increase your profit?
Add value through creativity. Homebuyers pay particular attention to a home's bathrooms and to its kitchen. Without spending too much, you could easily transform a seemingly run-down bathroom or kitchen into something more pleasing. When it comes to making cosmetic renovations, it may be best to limit the changes to things that are in plain view.
Keep a tab on expenses. Plan ahead of time and stick to your plan. When budgeting, take into account the cost of materials as well as labour, and spread your budget suitably across the different spaces that you wish to renovate.
Consider DIY. Undertaking renovations the DIY way can help keep costs in check, but make sure you have access to the right tools as well as the required skills.
Compare your alternatives. If you take the time to shop around and work on your negotiation techniques, you could potentially save money on supplies as well as labour costs.
Think long term. This is particularly important if you're making changes to the house you plan to continue living in because you're the one who'll benefit. Energy-efficient additions can be a plus (for your bills and the environment), and by opting to go green, you may also qualify for certain rebates.
Renovations that may not add value to your property
It may sound like an oxymoron, but certain renovations could decrease the value of your property. For instance, adding unusual furniture fittings or colours may be off-putting to potential buyers. If you are planning to sell for a profit, it may be best to stick to modern and neutral décor.
Swimming pools can also potentially decrease the value of your property as they can be viewed as high maintenance and difficult to remove. If you desperately want a swimming pool added to your home, make sure that you consider whether this is desirable in the area that you live in, or how long you intend to remain at that property, before starting the renovations.
Things to consider
Before taking out a loan to cover the cost of your repayments, it's important to consider a few things:
Can you afford the repayments?
To calculate the cost of your repayments, you need to consider both the interest rate offered and the loan's fees and charges. Look at how long your loan term is, the repayment frequency, any monthly or annual fees and the rate you will be charged. This will give you an idea of the true cost of the loan and your repayments. You can also use our loan calculator.
How flexible is the renovation loan?
Flexibility is another important consideration. Personal loan terms are generally between one and seven years. This is a significant amount of time, so you want to ensure that the loan can be accommodating to any change in your circumstances. Look out for things like being able to make additional repayments or being able to close the loan early penalty free as well as whether you can opt to change the loan terms.
Have you applied for the right amount?
This is an important question, not only because you could borrow too little money, but because you could also borrow too much. The principal amount you borrow from the lender will have an effect on your interest and could cost you quite a bit of money if you calculate the loan amount incorrectly. And if you borrow too little, it may be difficult to access additional finance to complete your home improvements.
How to apply for renovation loans
To apply for a home improvement loan, you can compare your options using the table above and click the "Go to site" button if you find a loan you want to apply for. This will take you through to the lender's website where you can fill out an online application form. If you have decided to access additional funds in your mortgage, you will need to speak to your mortgage lender directly.
To take out a personal loan, you will need to be over the age of 18 and a permanent resident of Australia. Depending on the lender, you will also most likely need to have a good to excellent credit rating.
When you apply, you will need to provide your name, address and proof of your identity. You will also need to provide details of your income, your employer's name and contact details as well as information regarding your assets, debts and liabilities.
Adam Mathew is a writer for Finder, specialising in video games and TV. He's been the editor of magazines such as Ultimate Nintendo and Official PlayStation AU. His words may also be found in IGN, Gamespot, Kotaku, Red Bull, Game Informer and AusGamers.
You'll receive a variable rate between 8.99% p.a. and 17.99% p.a. (9.67% p.a. to 18.6% p.a. comparison rate) based on your risk profile A credit limit up to $75,000 that you can continue to draw down over terms up to 5 years. Note: The establishment fee will be waived if you apply before 30 September 2019.
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