Planning a home renovation is an exciting time. From researching different flooring options to debating the merits of granite countertops, updating your home presents an opportunity to create the space of your dreams. While you may have bookmarked lots of renovation ideas, have you thought about how you’ll fund your home improvement project?
Refinancing might be the answer you’re looking for.
Tap into your home equity.
Whether you’re hoping to update your tired 1980s-era kitchen or create the ultimate bathroom sanctuary, renovations don’t come cheap. General manager of home buying for ME Bank, James Sheffield, shares that
home equity release is a viable option when funding renovation projects.
'Unlocking home equity is one of the best ways to fund a renovation. If your house has already increased in value, you can draw down the loan to further
improve the house. It probably means you can do your renovations earlier than waiting until you’ve saved up enough to cover the costs,' James explains, before adding that it’s also more financially beneficial than some other loan alternatives. 'For example, personal loans charge more, whereas home loans generally have a lower rate. So, it’s a more cost-effective way of doing it.'
Shop around for a lower interest rate.
Pop quiz: What’s your current home loan interest rate? If you’re not even sure what your interest rate is, perhaps it’s time for a review. A lower interest rate will enable you to channel more funds into your home improvements. Negotiating a lower rate with your bank means you’ll be able to redirect more of your hard-earned cash into
renovations, instead of interest payments. Whether you use a broker or speak directly with different banks, moving your home loan to a new bank offering a lower interest rate is another way to save money to channel into home renovations. To get a closer look at how much you could save monthly by refinancing your home loan, you can check out our
refinance calculator.
Switch to a mortgage with a redraw facility.
If you’re coming off a fixed-rate home loan, switching to a variable rate with a
redraw or offset facility is a smart way to make your spare cash work for you. By parking extra funds in an offset account or making use of a redraw facility, you’ll be able to reduce the interest paid on your home loan until you need to fund a new roof, kitchen, or bathroom for your home.
If you’re concerned about rising interest rates but still want to enjoy the benefits of having access to redraw or offset facilities,
splitting your loan with fixed and variable rates might be a wise strategy.
'Sometimes it's better to have the best of both worlds by splitting the loan and having an element of the loan fixed, and an element of the loan variable, because then you're effectively hedging your bets,' James says.
Think about debt consolidation.
Got a personal loan and some credit card debt weighing you down? It’s challenging to finance home improvements if your other debts are draining your funds.
Consolidating your outstanding debts into one, manageable payment may help you to pay down what you owe quicker, so you’ll be one step closer to funding your kitchen makeover or house extension.
'Generally, personal loans and credit card debts have high interest rates, whereas home loans have lower rates. So basically, you could cut your interest payments down if you consolidate your higher interest debts. You might end up paying your debts off faster, because you’ll be paying the debt down rather than just paying the interest,' says James, who notes that the amount of equity you have in your home (along with the loan-to-value ratio) will influence your ability to refinance and consolidate your debt.
Of course, there’s no point in consolidating your debt if you keep accruing new debts. So, when you refinance, be sure to close the personal loans and credit cards you’ve consolidated to stay ahead financially, for good.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.