Finance advice

How To Finance For Your Home Renovations

By Neil Carstairs

Have you been meaning to get that new kitchen or extension to spruce up (and add value) to your home but you’re simply short of funds?

SPONSORED BY Blogger: Neil Carstairs, Director & Senior Lending Specialist, Mortgage Corp 

If your savings or extra repayments in your mortgage offset account aren’t enough to cover the cost of a major renovation – don’t fear, there’s another option available to you.

Refinance your home for renovations

Many banks are happy to refinance your mortgage for renovations using either:

  • Your home’s existing value; or
  • An improved home value (called on completion value)

In this post, I’m going to cover what each of these refinancing options means for you and how you can get the most out of them.  Stop putting off your renovations TODAY!

 

When to use your home’s existing value  

Refinancing using your existing equity means that the current value of your home is used by the bank to determine how much you can borrow.

Using your own equity is suitable for smaller projects such as new kitchens and bathrooms, landscaping and painting – generally projects that cost $100,000 or less.

Here’s an example of how it works:

  • Say you have $50,000 in your mortgage offset account
  • You currently owe the bank $450,000 but your home is worth $600,000
  • If you refinance your mortgage to 80% of your home’s value, this means you can now borrow up to $480,000, meaning you can borrow an additional $30,000
  • Combined with your existing savings of $50,000, you would have $80,000 to use towards your renovations

 

Benefit of using your home’s existing value

The main benefit of using your existing equity is that the bank will normally refinance without you needing to provide lots of paperwork – this is usually a fairly quick process so you can start your renovations sooner!

 

Pitfalls to watch out for

The main disadvantage with this approach is that you are limited by your home’s existing value.  If you wanted to borrow more than 80% of the value of your home, you would need to pay Lenders Mortgage Insurance (LMI).

Because you’re limited in how much you can borrow, it’s tempting to keep the costs of renovating down.  This means you might skip on a building contract and DIY instead. If you’re not experienced, this can lead to all sorts of problems – such as time and cost blow outs, issues with tradies and worst of all, no insurance cover if things go wrong.  Tread carefully if you plan to DIY!

 

When should you use an on completion value?

Refinancing using an on completion value means that the bank will assess the value of your home after renovations when deciding how much to lend to you. This means you can borrow more than simply if you used your home’s existing value.

Using an on completion value is suitable for structural or major improvements such as extensions, adding storeys or adding rooms – generally projects that cost $100,000 or more and which also add more value to your property.

If we continue with the example above:

  • Say you wanted to add a new kitchen and another bedroom with ensuite for a total cost of $180,000
  • In the first example, you would have only been able to borrow an additional $30,000 before paying LMI
  • Based on comparable sales, you NEW home value would be worth $800,000 after renovations instead of $600,000
  • If you refinance using an on completion value, you can now borrow up to $640,000 without attracting LMI
  • This means you can borrow an additional $190,000 – more than enough to cover your renovations without you needing to even dip into your savings!

 

What you need in order to use an improved home value

Whilst you can borrow more under this approach, the process with the bank is a little more involved.  You would need a fixed price building contract with a qualified and insured builder for the renovations in order to get the bank’s approval. And of course approved plans and drawings done (usually the builder/architect arranges this)

On first glance, this might cost more than a DIY job.  However this gives you the security of:

  • Fixed costs;
  • More certain timing; and
  • Builder’s insurance if it all goes wrong.

The right approach is key

The key to a smooth renovation is to plan appropriately and to not jump in without preparation.  Plan for not only the building requirements but also for your finances.  Speak to an experienced Mortgage broker and let them help you structure your mortgage for long term investment success

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

    \r\n
  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
  • How the mortgage division supports the overall business of Rethink Investing<\/li>\r\n<\/ul>","clientImage1":"images\/podcasts\/Son-Pham.jpg","clientUrl1":"https:\/\/rethinkinvesting.com.au\/","clientName2":"OpenCorp","clientDesc2":"

    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1205 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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