Refinance, Tips

Why refinance to renovate your home

Is refinance only about to get a lower interest rate? For many, the answer is yes. But others may take refinance as an opportunity to meet other funding requirements.

Refinance your home is a major decision. It not only involves finances but also needs to meet your objective. Improving your living standard or adding substantial value to your property are some of the examples of renovation goal.

Refinancing your existing home loan is a very helpful strategy to fund your home renovation. But the catch here is to find and select the right type of loan. Or else you might end up with a pile of unexpected debt. And your financial obligations may bring substantial hardship.

So here are few tips you may follow to refinance your home loan to fund for home renovation.

Remember, these tips are general in nature. You may need experts to help to depend on your unique circumstances.

Do the Maths for Budgeting

The first step is to identify your requirements and the budget to support it.

Say, for example, you want to revamp your kitchen. Therefore you need to know what are the new things you want to add or the things that should be rid off.

Then do the maths for the total budget and the funds you want to finance. Many times the homeowners missed to do budgeting correctly and require additional funds during the renovation works. So, it’s always wise to estimate the budget slightly on the upper hand.

A couple of downsides of underestimate are- First, you need to re-apply for that extra fund. Often the lender may refuse to finance you more. Secondly, apparently, it could unnecessarily prolong the process or halt the entire project of your home renovation.

If you think you need $100,000, we suggest you to check your affordability with your mortgage broker before applying.

Know Your Borrowing Capacity

Before refinance for renovation, must have a clear idea about your borrowing power. Your borrowing power depends on your Income, Expenses and your ongoing loan commitments. Income works directly and expenses work inversely to borrowing capacity. Means you have more borrowing capacity if you have higher income and lower expenses.

The loan amount will also depend on the available equity in your existing mortgage. To do so, you need to find out the value of your property. Then subtract your current loan balance from it to get the available equity. You may apply for a maximum loan value of 80% without LMI. You may qualify for more than 80% if you are a professional like Doctor, etc.

Keep in mind, the value of the property may vary from lender to lender. We suggest, talk to our mortgage brokers. We help to find accurate borrowing capacity and possible loan amount.

Find the Suitable Loan Products

Next is to find out the suitable loan.  There are hundreds of loan products are available in the market. Each of them comes with different propositions and credit policy.

Talk to our expert mortgage brokers to help find the suitable one based on your needs and objectives.

There are two most popular ways to fund for renovation. They are:

A line of credit loan

To make cosmetic upgrades to your property, line of credit can be a great tool to help out in your funding requirements.

Revamping your kitchen, installing a new bathroom, painting the interior or exterior of the house or other basic construction can be covered under a line of credit loan. You may also take up to 80 percent of Loan-to-Value Ratio (LVR). Keep in mind that the proposed renovations will not supersede the costs of structural changes.

A line of credit can also be used for other purposes like buying investments or to meet your day to day expenses.  It’s just act like a credit card where you are allowed to borrow up to your approved limit. You will only be paying the interest on the amount that you have used.

Check with our expert mortgage brokers to find out more about the available LOC product, interest rate, and on-going offers.

Construction loan

If you’re thinking to make structural changes or adding an additional floor, then construction loan is the suitable loan. Any structural work of your home can be done under construction loan.

Construction loans give access to the large sum of amounts. The value of your property will be the available equity of your home plus the construction loan after renovations are completed. The interest on this loan will be calculated on the outstanding balance. So you will have the option to access more fund but will pay interest only on the used funds.

Depending on the lender policy, you may need some additional documents such as council approved plans and specifications and fixed pricing building contract at the time of applying for a loan. The lender will make progress payments upon completion of each stage. A lender appointed assessor will also inspect each stage of the construction before disbursing funds. Upon completion of the construction, you may choose to refinance it back.

The construction loan is complex in nature and requires a proper calculation and hefty paperwork. Therefore, we suggest you talk to our expert mortgage brokers. We can assist you in every stage of loan and reduce your stress.

Depending on your objective and requirements, you can use any other property for LOC and a construction loan at the same time.

Mortgage Broker Advice

The lending industry is changing rapidly. With new policies are adding overnight, qualifying and finding the suitable loan is getting complex.  An expert mortgage broker can help you in deciding which loan will be the suitable for you. A poorly planned construction loan may cost you more and jeopardise your bank security. While an underestimated loan may halt your whole renovation project 

Contact Us before you plan to refinance your home loan for home renovation. 

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