Borrowing to renovate

Popular home renovation shows, such as The Block, are inspiring those with home loans to look into carrying out their own home transformations, but not everyone has a Channel Nine budget to do so.

According to the HIA’s 2013/14 Kitchen and Bathrooms Report, the overall value of bathroom renovations increased in the 2012/13 year to $13,986 per room, up from the average value of $15,122. Meanwhile, some interesting figures were presented regarding kitchen renovations, with almost three-quarters (74 percent) being completed on those between 11 and 20 years old.

Whether Australians are extending their kitchen, revitalising the bathroom or adding an additional bedroom, there are numerous ways to improve a home’s liveability — and potentially its value. And for those with the dream but not the funds, there are many avenues available that will enable you to borrow to renovate.

Are you ready to renovate?

Australians are renovation fans, not least because it means they can stay put without suffering from limited space. Adding an extra room or extending a key living area by knocking down a wall can make an already good home even better to live in. 

Depending on the project you’ve got in mind, renovations can cost a fair bit. Rather than topping up your savings account year-in, year-out until you’ve got sufficient funds to freshen up your kitchen or transform your backyard, consider borrowing to renovate. Provided you don’t overcapitalise, it can be money worth spending, particularly if it has the effect of raising your home’s value.

Take out a home equity loan

If you’ve been paying off your loan for some time, you may have built up sufficient equity in your property to renovate. Equity is the value of an asset less any money owing on it.

You could tap into this equity, taking out an equity loan to fund your renovation project. You may need to confirm with your lender the kind of renovations you plan to undertake — given they hold a security over your home, they’ll need to be confident the renovations you complete don’t negatively impact this legal interest.

Secure a construction loan

A construction loan is suitable when you want to make big changes to your home, such as completing a kitchen makeover or extending your sunroom.

It’s a good option if you’re concerned about interest adding up, because you can draw down funds as you need them. For instance, you might complete key structural work first, then move onto fitting appliances and interior decorating.

Better yet, some lenders will allow you to pay only interest (rather than interest and principal) while construction takes place. This flexibility makes construction loans favourable with many homeowners — just make sure you don’t borrow beyond your means if you go down this route!

Pull out the plastic

If you want to make low-cost, superficial changes — such as painting your living areas and replacing minor fittings — using your credit card could be preferable.

But there’s one catch: If you don’t make the required repayments in time, you could face hefty interest. Be sure to budget carefully before paying for equipment, tools or labour on your credit card.

Have a chat with your lender about the best approach for your situation. Depending on the degree of structural work required and necessary funds, they’ll be able to provide you with sound advice. Don’t hesitate to shop around to find the best product for your needs, either!

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