Are you dreaming about a home renovation? Maybe your family has started growing and you’re running short of space. Maybe you wish you had an extra bedroom, a more suitable home office space or an additional bathroom. Or maybe you’re just tired of using a kitchen that’s outdated and cramped!
Whatever your reasons, Professional Lending Solutions can help you achieve your renovation dreams. Our experienced team of brokers can assess your circumstances and then provide tailored advice on which renovation loans would be most beneficial for you.
If you’re one of the many Gold Coast residents who are eager to improve their homes, you’ll be pleased to know that there are several different financing options available. How can you decide which home renovation loan is right for you? Start by talking to an experienced mortgage broker.
Australia is a nation of renovators. While we’ve always suspected this to be the case (just look at our long-standing love affair with reality TV shows like The Block and House Rules), it’s now been confirmed thanks to a recent study that ranked Australia as third in the world when it comes to search volume for renovation terms.
While we’ve always loved a good fixer-upper project, the drive to renovate was supercharged during the worst of the COVID-19 lockdowns. In 2021, Australians poured a massive $12.3 billion into house renovations. That was a 33% increase on the previous year and double what we were spending a decade before.
But it hasn’t all been smooth sailing for would-be renovators. While 14% of Australian homeowners chose to renovate in the last quarter of 2021, 61% of those same renovators said they thought the cost of renovating has now increased.
The same data set also revealed some interesting insights into the motivation behind renovating. For those aged over 50, almost 1 in 2 said they were renovating to add value to their home.
Many renovating homeowners are clearly looking to strike a balance between affordability and adding value. Fortunately, this doesn’t have to be as difficult as it sounds. Renovation loans can help you add significant value to your home without breaking the bank.
Most real estate agents agree that renovations have the potential to add significantly to the value of your home. However, not all renovations are valued equally. So, what kind of renovations will add the most value to your property?
You’ve probably heard the old cliché that “kitchens sell houses.” Well, according to the experts, this is true. The kitchen is a focal point within the home and an area that potential buyers will tend to focus on.
According to one Australian builder, a standard kitchen renovation will cost around $35,000, while adding around $20,000 worth of value. This would deliver a return on investment (ROI) of 57%.
Bathrooms are another prime candidate for renovation since they often start to show their age faster than other areas in the home. According to one real estate agency, bathroom renovations can deliver up to 75% ROI because of their perceived high value in the eyes of buyers.
A 3 bedroom home is typically worth more than a 2 bedroom home, and 3 bedrooms plus a study will be worth more again. If possible, consider increasing the floor space of your home with the addition of another bedroom, an office or even an additional living area.
Renovating your home can be a great way to improve its appearance and make it more comfortable to live in. You might decide to do this when you first move in or you might decide to wait awhile. Many homeowners prefer to wait until their circumstances have changed or until they’ve lived in the home for long enough to know exactly what changes they want to make.
Regardless of when you choose to renovate, you’ll likely need to secure finance to complete the project. Fortunately, in Australia, there are a range of different house renovation loans available that can help you finance your project. But what exactly is a loan for renovation works?
Renovation loans are financial products designed to fund home improvement projects. Basically, they allow you to upgrade your property without having to save all of the funds in advance.
Unlike a traditional mortgage, renovation loans typically offer shorter terms, ranging from 1 to 7 years. Renovation loans can be used to cover the costs of various expenses, including materials, labour, permits and professional fees (such as hiring an architect, builder or project manager).
With a range of options available, a home renovation loan offers you a greater level of flexibility. By leveraging a loan for renovation works, you’ll be able to enhance your living space, increase the value of your property and achieve your renovation goals with manageable repayment terms.
If you’re thinking of renovating your home on the Gold Coast, you’ll need to factor in the cost of materials, labour and permits. Depending on the size and scope of your project, the total cost can range from a few thousand dollars to potentially hundreds of thousands of dollars.
Are you planning a major overhaul or just some cosmetic updates? The scope of your project will have a big impact on the overall cost as it will determine what kind of labour you need, how many professional tradespeople you need to hire, the materials needed to complete the work and the overall timeline of the project. So, it’s important that you have a clear idea of what you want to achieve before you start looking at numbers.
This is an important consideration, especially if you’re planning to sell your home in the future. While there’s no guarantee that your home will increase in value after a renovation, it’s worth doing some research to see what other homes in your area have sold for after similar renovations.
PRO TIP: Remember to add an extra 10% to the total estimated renovation cost. This will give your renovation budget a buffer to cover any unexpected expenses.
If you’ve built up equity in your property, then you may be able to refinance your home loan to access this equity.
What is equity? It’s the difference between how much you owe on your home loan and what your property is actually worth. For example, if you have a house valued at $500,000, and you owe $275,000 on your mortgage, then you have $225,000 worth of equity in your home.
When you refinance to access equity, you’re essentially transferring your existing home loan to a new lender (or a new loan product with the same lender) and then borrowing an additional percentage which is added to your current mortgage balance. This is a great way to access cash for a renovation while still maintaining a low interest rate.
Depending on your existing home loan structure, you may be able to apply for a mortgage “top-up”. These added funds can then be used to pay for your proposed renovation.
This is similar to how a refinance option would work, but it means you keep your existing home loan product and remain with the same lender.
If your existing home loan has a redraw facility, then you have the option of redrawing any additional repayments you have made over the life of the loan.
For example, imagine you first got your mortgage 5 years ago. In addition to your minimum monthly repayments, you’ve been paying an added $500 per month onto your mortgage. After 5 years, you will have paid off an additional $30,000, and these funds can now be redrawn to pay for your renovation.
If you’re planning a small renovation (such as a simple cosmetic upgrade to one or two rooms), then a personal loan may be a good finance option. A personal loan can be unsecured and will often allow you to make additional repayments (so you can pay off the loan earlier).
While a personal loan will generally have a higher interest rate compared to a home loan, it will still have a much lower interest rate than the average credit card.
A construction loan is a loan product specifically designed for large home construction projects, including new builds, knock-down/rebuilds, extensions and substantial renovations.
With a construction loan, a lender will approve you to borrow a set amount of money, which can be accessed via progressive drawdowns. These drawdowns will be outlined in your contract and will align with the progress payments stipulated by your builder.
The great thing about a construction loan is that you are only charged interest on the percentage of the loan that has already been released. So, if you’re planning an extensive renovation that is going to take 9 months to complete, you won’t be paying interest on the total loan value until after the project is finished.
Construction loans are also usually “interest-only”, which can make it easier to manage repayments while the project is ongoing. Once the construction work is finished you can either pay out the balance of the loan or convert it to a traditional mortgage.
It goes without saying that each lender will have their own eligibility criteria for processing applications for loans for renovations. With this in mind, below are the minimum qualifying criteria for most Australian lenders.
The borrower must:
Applying for renovation loans is not that different from applying for a standard home loan. You will need to submit an application to a lender, meet their approval criteria (e.g., have a good credit score, a stable income, equity in your home, etc.), and sign a loan contract indicating you agree to the terms of the loan.
As with any other loan product, it’s a good idea to seek the assistance of a professional mortgage broker before applying for renovation finance. A broker can help you with several aspects of your loan application including sorting your paperwork, demonstrating your financial capability and shopping around for the most suitable loan products with the most competitive rates.
At Professional Lending Solutions, we have an expert team of brokers who can assist homeowners with organising renovation loans on the Gold Coast. How do we figure out which loan product will present the best solution for your renovation project?
We start by taking the time to talk to you. Rather than try and rush you through the process, we’ll ask questions, do research and consider your current financial situation. Only once we have all of the relevant information will we start making suggestions, which will be based on our years of industry experience and up-to-date lending panel.
Brokers in Australia are governed by legislation commonly referred to as ‘Best Interest Duty.’ Basically, this means that we are legally required to always act in your best interests.
We won’t recommend a finance solution unless we genuinely believe it is the best possible option for your immediate and long-term financial future. It’s also worth noting that banks are NOT subject to ‘Best Interests Duty’, so they are not legally required to offer advice that benefits the customer.
We have access to an extensive lending panel, which includes loan products from the major banks, smaller banks and even independent lenders that you’ve probably never heard of.
Why is this a good thing? Because it means we can select the most suitable loan product from the widest possible range. We can find a loan that not only offers a great interest rate, but that will also offer the loan structure and features best suited to your situation and your long-term finance goals.
It is possible for a determined homeowner to do their own extensive online research and compare loan products from a wide range of lenders. It is also theoretically possible for a homeowner to attempt a complete DIY renovation, despite having no previous construction experience.
Online research will only ever get you so far. If you want the best possible result, it’s well worth using a professional with years of nuanced industry experience (this applies to your finance and your renovation!).
The amount that you can borrow will depend on the type of loan you want to apply for and the amount of equity you have built up in your property. In general, you can borrow anywhere from $2,000 to $100,000+, depending on what type of loan you are eligible to apply for.
Most personal loans start at around $2,000 but can go as high as $50,000+. A typical construction loan will often start at $100,000 but can be substantially higher depending on your borrowing capacity.
If you’re planning to access the equity in your property, then most lenders will start by calculating your usable equity. This is 80% of the total value of the property, minus your existing mortgage balance. For example, imagine your property was valued at $600,000 and your home loan balance was $300,000. To calculate your usable equity, you would determine that 80% of the property value was $480,000 and then subtract the $300,000 loan balance. This would leave you with a usable equity of $180,000.
For a tailored assessment of your potential borrowing capacity and advice on what kind of loan will best suit your needs, contact an experienced mortgage broker.
Once again, this will depend on the type of renovation finance product you choose and the amount of equity you have built up in your home. Most personal and construction loans have terms of up to 7 years in length. If you choose a mortgage top-up or a cash-out refinance then you may have up to 30 years to repay the loan.
Remember that a longer loan term will reduce your monthly repayments but could also result in you paying more interest over time. It’s well worth talking to a broker before finalising your loan term so you can get an accurate estimate of how much interest you’ll likely end up paying over the life of the loan.
A construction loan is a little different to a typical mortgage, so you will need some additional documentation (besides the usual proof of income, proof of identity, etc.). A lender will want to see what’s involved in your proposed construction project, to make sure you’re not overcapitalising on the property.
Most lenders will typically ask to see project plans and specifications (showing what materials you’re planning to use), a copy of the proposed building contract and quotes for any extra works that won’t be included in the contract (such as having solar panels or a new pool installed).
One important thing to remember about renovation loans is that it’s essential to do thorough research and include all applicable costs. When you’re obtaining a mortgage to buy a new home, you know exactly how much that property is going to cost you on settlement day, so it’s easy to say how much money you need to borrow. But renovation projects aren’t like that.
A renovation is made up of many smaller costs, some of which may fluctuate as the project progresses (for example, if asbestos is discovered). In addition to factoring in all relevant expenses (including necessary building and planning permits), you’ll also need to have a contingency plan that will allow you to deal with any budget blowouts.
With a construction loan, funds are released in predetermined stages. The various progress payments required by your builder will be clearly defined in your building contract (usually a percentage of the project total). As each stage of the project is invoiced, your lender will release the corresponding percentage of your loan to pay the builder. The lender will only charge you interest on the money that has already been released, not on the total balance of the loan.
For example, imagine you have a construction loan totalling $215,000. Your builder might charge you 5% for preliminary works (obtaining permits, etc.) and then 15% for the demolition. At this stage, you’ll have only accessed 20% of the total loan. So, you’ll only be charged interest on $43,000 (20% of the total) instead of $215,000 (100% of the total).
A drawdown construction loan could save you a significant amount of interest throughout the project. If you obtain an interest-only construction loan, then you won’t have to start making principal and interest payments until after the project is finished and the interest-only term has expired. This can make it easier to manage loan repayments if you’re also paying rent while the project is underway.
We always recommend that your first step for any type of finance solution should be to find a mortgage broker who can help you in all stages of the application process. From there, everything else becomes less complicated than it would be if you were to do it yourself or if you were to approach a lender directly.
With a mortgage broker on your side, you can feel reassured that you’ll only receive advice that meets your objectives, financial situation and needs. A mortgage broker is legally bound to act in your best interests, so you can trust that they genuinely do want what’s best for you.
To apply for a renovation finance loan, book an appointment with Professional Lending Solutions today.
