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Refinancing Your Mortgage for Home Renovations

Australians are spending more money on renovations, which makes sense when you consider just how the pandemic affected how people live and work, plus the impact on the property market. In addition to personal priorities, the government stimulus from COVID-19 made it more palatable than ever before to finance these alterations. 

In fact, nationally, data sets show the value of home renovations approved each month has surpassed the $1 billion mark for the first time in february. This then grew to $1.14 billion in March. By comparison, the average monthly value was $680 million in 2019.

Why Are Home Renovations So Popular?

There are a few factors at play when it comes to home renovations:

  • The property market is surging: Not only are homes becoming more sale-worthy, but home evaluations are currently being inflated as well.
  • Redistribution of funds: People are spending less on travel because of the pandemic, and they’re building up more assets as a result.
  • Higher equity: More equity resulting from market inflation makes it possible to borrow additional funds to renovate homes and make them even more valuable by the time owners sell.

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How to Refinance Your Mortgage for Renovations

If you’re interested in renovating your home, you should know just how much you have to spend on the repairs and upgrades. With Shore Financial, we can show you all of the different ways available to you if you’re looking to refinance to free up some cash.

One of the more common ways to finance renovations is to use the equity you’ve already built in your home. If you top-up, you’re essentially adding to your current loan, which can both streamline the paperwork and potentially protect you from higher interest rates. You can also consider switching your loan for better terms and conditions. A different lender might offer lower monthly payments and more flexibility when it comes to getting the capital you need.

You can also consider redrawing your loan, which means that you ‘take back’ any additional payments that you’ve already made. Not all lenders offer this, though, and some may charge you fees for this privilege. Whichever option you are interested in, you’re increasing the loan amount and in doing so, the interest payments on the loan (because you now technically owe more).

If you’re doing major work on the home (e.g., new roof, wall demolition, etc.), construction loans may be a worthwhile option. The condition though is that the house has to be worth more after you complete the renovation. You’ll also need to find a registered builder and secure a contract as well as obtaining council approval before you can get the loan.

What to Keep in Mind When Refinancing

As you evaluate how to refinance your home, keep the following in mind:

  • Start by looking at your home loan rate and speak to your broker about what else is on the market.
  • Changing lenders can be a great option, but there will be fees for mortgage refinancing.
  • Do not try to hide or downplay the costs of renovation costs. You must be honest about what you’re doing in order to get the right loan.
  • Most home loan experts will tell you not to spend more than 10% of the property’s median value. 
  • A lender may not approve you if your home has either decreased in value or you have very little equity to show for it.

Lenders Mortgage Insurance (LMI) will apply if you’re borrowing more than 80% of your property’s value (total), so make sure you’re factoring in the premium.

If you’re unsure how much equity you’ve built in the property, speak to your Shore Financial broker who can arrange  a valuer to come out to see the home free of charge. If the property has been inflated due to market demand, this will be good news for your equity and give you additional buying power.

Finally, keep timing in mind. If you’re going to have a new mortgage application processed, it can take time — and that’s if you have everything in order.

How Can Shore Financial Help?

There’s a lot to know and research if you’re hoping to do some home renovations this year. If you’re looking for home loan advice, a home lending specialist can give you all the information you need to keep your expectations in check and prepare for the total costs.

Our team of mortgage brokers doesn’t just know the market, we can tell you how to use the opportunities to your advantage. From your credit score to your current interest rates, we work with what you have and match up your needs with what’s available. If you want to learn how to simplify home renovations, get in touch with Shore Financial today.


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