Do your plans for 2025 include things like a new bathroom, a kitchen upgrade or perhaps even a whole new backyard (that may/may not come with a pool)?
If so, let’s look at the different ways these projects can be financed so you can get an idea of what’s possible for you this year.
Use cash saved in your offset account (or redraw funds in your home loan account)
You may have cash saved in a home loan offset account.
Or, perhaps as a result of paying more than the minimum loan repayment for some time, you have available funds sitting in your loan which you can access via redraw.
Both sources could provide money to help fund your renovations.
However, depleting either of these cash reserves will increase the interest you pay on your home loan.
So we recommend you crunch the numbers (we can help you with this) before you dip into these cash reserves.
Top up an existing home loan
If your home is increased in value and/or you have reduced the loan balance on your loan, you might be able to borrow a little bit extra to ‘top up’ your existing home loan.
While this option sounds more straightforward than refinancing your loan entirely, it’s not always as straightforward as it may seem.
An increase to an existing loan is typically considered a credit critical activity – which means a lender will need to re-verify your financial situation to ensure you can cover the increased repayments. Because you’re increasing your debt level but keeping the loan term the same, depending on how much you’re releasing and how long you’ve had your loan, the jump in repayments can be significant.
Added to that, some lenders will charge fees to top up a home loan, so it definitely worth exploring all options.
Refinance to a new loan (this doesn’t necessarily mean changing lenders)
Refinancing to another loan can be another way of accessing funds for a renovation. This can be a good option when your old loan no longer has a competitive interest rate or the features you need.
The benefit of refinancing is that it allows you to access equity that has already built up in your home, so you can use this to help pay for renovations (which will hopefully increase the value of your home even more).
Ideally with a refinance, we’d be trying to help you achieve a few objectives in one go – i.e. lower interest rate, loan that has useful features as you progress your renovation, access to additional funds, minimise the impact on monthly cashflow by choosing a loan term that suits you.
Think about a construction loan
If a new bathroom or kitchen won’t quite cut it and you’re thinking of adding a second floor for example, sometimes a construction loan will be required.
Construction loans work differently to a standard home loan because the funds are released in stages, in accordance with different stages of the build.
You can find more about construction loans (also known as build loans) here.
Understand your options before you commence any work/engage contractors
It’s difficult to start planning improvements without knowing just how much you can spend.
If you’d like to get a clearer idea of how your 2025 renovation plans might play out, contact our team today.
