finance your reno

TIPS ON FUNDING HOME IMPROVEMENTS

Words Aaron Christie-David, Atelier Wealth

You have two options when financing a renovation: one is to use cash if you have enough, or alternatively you can get a loan to cover costs. Every bank has a different approach, depending on how substantial your scope of works is, so here’s an outline of things to consider...

How do I ask to borrow the funds? If you want to control the funds for your renovation yourself, then you may consider an “equity release” loan. There are a few elements you need to consider: * Your current lender may not allow this depending on how much you want to borrow, so refinancing to another bank may be your best option. * You’ll need to have the borrowing capacity to access the extra equity you need. * Some banks will want building plans, which becomes a chicken and the egg scenario, as you will want to know how much you can borrow before committing to a builder.

Should my repayments be interest-only? * The popular vote is to be interest-only to help with cash flow.The added benefit of interest-only is that you’re not making any repayments until you use your funds, which

is helpful if your project isn’t kicking off immediately. * You can certainly go principal and interest if you want to start repaying your loan as quickly as possibly, and you may consider a variable rate loan over a fixed rate. A fixed rate loan only allows for up to additional repayments of $10,000 per year.

How long will this take? The short answer is, longer than you think! The exciting part is planning your renovations and quite often the loan becomes the hurdle, which is why it is recommended to look at your loan options before you plan to renovate. If you do go back to your current lender or want to change banks, you will need to supply updated documents, such as payslips or financials (if you’re self-employed) and the bank may require a valuation of your property to be undertaken.

Top tips

1. Find out your maximum borrowing capacity before engaging a builder to have a budget in mind. 2. Work out timeframes from a loan and a build perspective. 3. Kick off your finance process early to ensure you are prepared and to give your builder time to book your work in. ¡