Borrowing to renovate? Negotiate with lender

Investors looking to borrow from their lender to renovate may find themselves in a good negotiating position, according to a leading mortgage broker.

Loan Market’s corporate spokesperson, Paul Smith, said that investors looking to borrow for renovation are looked upon favourably, which could allow them to place themselves in a bargaining position.

“It’s often worthwhile negotiating an additional discount or incentive to refinance your loan for the purpose of renovation, because you’ll be adding value to the underlying asset and making a significant long-term investment in the property,” Mr Smith said.

He told Smart Property Investment that while rates are the “key thing” that can be negotiated down, other aspects and features such as reduced fees, the ability to redraw and the use of offset accounts may also be on the cards.

Brokers will do a lot of the negotiations for an investor and a “good broker will always stay in touch with their clients” to ask about any new renovations or improvements.


However, “The negotiating depends on the size of the loan and the LVR,” he said.

Some renovations may not be applicable, for instance small cosmetic changes. Structural renovations, including extensions, are more likely to be viable.

A broker with Loan Market, Lee Banh, also explained to Smart Property Investment that there are other factors to be wary of when looking to borrow for renovations.

He pointed to an investor client who tried to borrow on three separate occasions to fund his renovation project.

“An assessor is more likely to turn around and say ‘you’re blowing your budget here’ if you borrow multiple times for a renovation,” said Mr Banh. This is particularly the case if you try to borrow three times within one year.

Instead, “Over-quote it a little bit. If you think $50,000 is needed and there’s the capacity to borrow $60,000 or $70,000, then borrow and leave [any you don’t use] in the loan as redraw.

“Get it right the first time,” he said.

This will also assist investors avoiding extra borrowing fees that can vary up to $300 each time.

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