29 Jan How to use your mortgage to fund a renovation
You own your own home and you’ve been making steady progress paying it off, but the house is a bit tired. It’s time to renovate.
You want to remodel the kitchen, add another bedroom or open up the living room. But after paying your bills and covering your living expenses, there’s not enough left in your paycheque to do it. How is it possible?
Most people have probably heard they can refinance their mortgage to get a better rate or to switch lenders but it’s not commonly known that you can also refinance to fund a renovation.
Mortgage Brokers work with over 30 different Australian lenders and they do most of the work for you – through the entire approval, negotiation and submission process. Our team of home loan specialists make it easy.
We help customers from the first time they interact with us, for the life of the loan. We do regular pulse checks for all of our customers after settlement to ensure they’re on the best rate and product for the life of the loan.
There are two types of renovations to consider for your refinancing; structural means walls, windows, additions or anything else that will affect the structure or floorplan of the property. Non-structural covers everything else.
In most cases, a lender will not become overly involved with a non-structural renovation but with a structural renovation, the lender will want to control the funds – using a fixed-price building contract and paying that builder directly at each draw down stage. This will minimise the chance of the renovation going over-budget.
You can improve your house before paying it off. And for a structural renovation, it could increase the valuation of the house and therefore, your equity.
“For structural renovations, the lender will generally take a TOC valuation, meaning the value of the house is given tentatively on the completion of the renovation. This can improve your LVR (loan to value ratio) and potentially allow you to borrow more.”
So, if you approach us with an LVR that is below eighty per cent (above which you would require lenders mortgage insurance) we could potentially find a loan product for you that would allow you to refinance, renovate and still stay under that magic number.
There are some cases however where refinancing to renovate might not be the best plan.
The main time we recommend someone not to do it is if they’re already tight for cashflow, they already have a large amount of personal debt or they don’t think they are in a position to increase their current debt position. Fortunately, this would be one of the first things discussed with a home loan specialist.
Every customer has a specially appointed home loan expert they deal with to ensure a smooth approval and settlement process. Who can assist with anything else post-settlement as well.
If this sounds right to you – and your ‘Renovation’ Pinterest board is ready to go – Contact us today.