Renovation home loan FAQS
What types of renovations can you do?
Common renovations that can add significant value to your home include:
- adding a pool, decking or outdoor area.
You can also do structural renovations to your home if necessary.
How much can you borrow for renovation loans?
This depends on your individual financial situation and how much you can afford to repay. You can use our loan repayment calculator to help you work out your borrowing capacity.
What are the benefits of renovating over moving?
Renovating helps you to avoid selling and purchasing costs such as:
- real estate agent fees,
- stamp duty,
- legal/conveyancing fees.
It can also:
- add significant value to your home (or investment property) if it’s done well.
- allow you to adjust your home to suit changing family needs (for example, a growing family).
What are the risks of renovating?
The potential risks of renovating include:
- getting more expensive finance than you should,
- overcapitalising your home (i.e. spending more on your renovation work than the value of your home will increase when it’s done),
- devaluing your home if the work is inappropriate or poor quality, and
- cost blowouts.
What happens if you have renovation cost blowouts?
You should factor an amount for cost blowouts into your home renovation finance approval. After all, you don’t want to get stuck with a partially completed renovation due to lack of finance!
You can also help to protect yourself against cost blowouts by entering into contracts with renovators at fixed rates.
SHOULD YOU USE A LICENCSED BUILDER?
Most lenders prefer you to use a licensed builder as a condition of approving home improvement loans. It’s also important to get relevant council approvals for any renovation work that’s done, especially if you’re doing the work yourself.
What is a comparison rate?
A comparison rate is the total cost of a loan or credit, including both interest and any loan fees or charges. When you see two interest rates on a loan from a financial services provider, the higher one is the comparison rate. The lower one only includes the cost of interest. Lenders must advertise their comparison rate on products to be legally compliant.
HOW DO HOME RENOVATION LOANS WORK?
Home renovation loans typically work by allowing homeowners to borrow money based on the value of their property. The loan amount can be used to cover the cost of home renovations such as repairs, upgrades and additions. These loans can be secured or unsecured, with secured loans requiring collateral such as the property itself to protect the lender from financial loss. Interest rates, repayment terms and eligibility criteria can vary depending on the lender and loan type. Homeowners can use the funds to complete home improvements, repaying the loan over time through monthly instalments.
WHAT IS A REDRAW FACILITY ON A HOME LOAN?
A home loan redraw facility is a feature that enables individuals to withdraw funds they’ve already paid off beyond their required mortgage payments. This flexibility provides them with an option to access extra funds for various purposes such as renovations or emergencies. Redraw facilities are typically associated with variable rate home loans and can help homeowners reduce interest by making additional repayments and then redrawing money when needed. It’s important to note that some lenders may impose minimum redraw amounts or charge fees.
HOW OFTEN CAN I USE THE REDRAW FACILITY?
The frequency at which you can use the home loan redraw facility depends on the specific terms and conditions set by your financial institution. While some institutions may impose limits on the number of redraws you can make within a specific time period, others may allow unlimited access. It’s essential to review the terms of your specific redraw facility or contact your financial institution if you’re unsure.
WHEN SHOULD I APPLY FOR THE RENOVATION LOAN?
You should apply for home renovation loans when you have a clear understanding of your renovation plans and the associated costs. It’s advisable to apply for the loan well in advance to allow sufficient time for the application process, including gathering and filling out required documents. Additionally, you should consider applying when your credit score is strong to improve your chances of approval and secure more favourable loan terms. Planning ahead and applying early will provide you with ample time to navigate the loan process and ensure a smooth renovation experience.