4 Ways To Finance Your Next Renovation Project

Whether you want to update your kitchen or increase the resale value, renovating your home is a big step.

After all, you spend a decent amount of time living in it!

However, taking on a renovation project can be expensive. So, it’s important to consider all the financing options available and choose the one best suited to your circumstances. Below, we’ve listed four different ways to finance your next renovation project. 

1. Tap into your equity

Tapping into your equity is one of the most common ways to fund a renovation project. Equity is the difference between the current value of your home and the amount you still owe on the loan.

For example, if your home is worth $800,000 today, and your loan is $450,000, you may have up to $350,000 in equity.

Equity can build up over time because your home value could be worth more than when you bought it. While you may not be able to borrow the full equity amount, some banks allow you to borrow up to 80% of your home’s value. 

2. Redraw from your home loan

Redrawing from your home loan is another option to help cover renovation costs. If you’ve been making extra repayments along the way, you might be able to redraw that money. However, it depends on how much you have available to redraw and whether your lender has a redraw facility available.

If you decide to redraw from your loan, the balance on your loan will increase meaning you may have to pay more interest and your repayments will increase. Also, make sure to check if there are any fees if you redraw from your home loan.

3. Apply for a personal loan

If you’re planning a smaller renovation project, you might want to consider applying for a personal loan.

Personal loans are a fast and simple way to borrow a small amount of money as they are often processed quickly by lenders.

Once you have an estimated cost of your project, you can apply for a personal loan and receive the funds almost immediately. For example, Jacaranda Finance offers personal loans and specialises in bad credit loans.

If approved, you could have the funds transferred to you on the same day of applying. 

4. Consider a building and construction loan

If you’re planning a major renovation that requires a hefty amount of funding, you might want to consider a building and construction loan (BICOE). A construction loan works in the same way as a home loan, except you won’t be given the full loan amount upfront. Instead, you’ll receive your loan in installments known as ‘progress payments’.

This allows you to pay bills as they come and help manage your cash flow. Often, you don’t pay the interest portion of the loan until the renovation work is completed. A construction loan usually requires a lot of paperwork including plans and permits.

As the loan will be based on the final value of your home post-renovation, an inspection and valuation may be required.