Are you planning a house renovation? Upgrading your existing property is a great way to improve your living space while adding to your home’s value. Large home renovation projects can be expensive, so if you don’t have the cash to pay upfront, a home renovation loan can be an attractive option to fund these improvements.
There are a variety of different types of loans that can be used to finance home renovations. The kind of loan that you may require depends on a number of factors, such as your budget, the size of your renovation project and the amount of equity you already have in your property.
If you have at least 20% of the equity in your home, a home equity loan or mortgage top-up could allow you to borrow against that equity in order to fund improvements. These types of loans will often allow you to borrow at lower interest rates than a personal loan or utilising a credit card.
For large projects like major refits or building extensions, you may wish to consider a standalone construction loan. This type of loan is typically calculated using the projected market value of your finished property. Construction loans pay out funds in stages over the duration of the project, as opposed to a single lump sum.
A fixed-price contract has a largely predetermined cost, making it ideal for projects that have a clear scope of work. It is generally easier to access financing for fixed-price contracts, because there is less risk involved for lenders and little danger of going over budget. With a fixed-price contract, the builder is obligated to complete the work within the timescale and budget agreed. However, variations to fixed-price contracts can still occur, especially in today’s market that has seen significant volatility in the price of building materials.
A labour-only contract is an agreement where the client project manages the renovation work and pays the contractors for the hours that they work. This type of contract is more involved and time-consuming for the client, but can potentially offer big savings if everything goes to plan. However, the unpredictable nature of renovation work means that there is substantial risk involved. If unexpected costs or delays arise, the project could end up exceeding its budget and landing the client in financial difficulties. Because of the risk of over-capitalisation, lenders are often less keen to approve loans for labour-only contracts.
If you are unsure about how to move forward with financing your home renovation project, Personalised Mortgages is here to help. Our friendly specialists can walk you through the different available options and help you to access great deals on renovation loans with New Zealand’s top lenders.
The best loan type for a home renovation depends on a variety of factors, including your individual financial circumstances, the cost and complexity of the proposed renovations and the equity you have built up in your home.
Equity loans or mortgage top-ups typically allow you to borrow up to 80% of your property’s market value. Unsecured personal loans for home renovation projects often have a maximum limit of $50,000.
The best bank for renovation loans is the one that offers financing and rates that work well with your specific needs and circumstances. Mortgage advisers often have relationships with numerous lenders and can work to find the best available deals to finance your renovation.