Whether you’re looking to future-proof your family home, add value before selling or finally create the kitchen you’ve always wanted, large scale renovations don’t come cheap.
For many Kiwis, refinancing your mortgage can be a smart and cost-effective way to access the funds needed for home improvements. But even if the bank says “yes”, it is critical to minimise risk and ensure you get the structure of your lending right.
Here’s what to consider if you’re planning a significant renovation and what to make sure your lending works for you both now and for the long-term.
Using your mortgage to fund renovations is often cheaper than using a personal loan or credit card debt. Mortgage interest rates are typically lower, and repayments are spread over a longer period, which can help keep you manage cashflow and keep monthly costs more manageable.
Refinancing your mortgage to fund renovations also allows you to tap into the equity you have built up in your home, and – if done right – your renovation should increase the value of your property, which is great news over the longer term.
Additionally, if reviewed at the same time, refinancing may also provide you with the opportunity to consolidate other debts.
While there can be a number of benefits to funding a renovation via refinancing, taking on additional debt can also become problematic if not carefully planned. The key risks include:
However, many of these risks can be forecast and mitigated and our team can help you work out whether your project and lending approach are realistic.
How you structure your loan can make a big difference to how manageable any extra debt taken on will be. Some options include:
Topping up your existing mortgage
This is a relatively simple way to increase your loan amount, particularly if you’ve already built up equity in your home. This is best suited for smaller to mid-range projects and will depend on how much equity you have available.
Construction or revolving credit loans
For more complex, major or staged renovations, a constructure loan or revolving credit facility may be better. These types of lending can provide greater control over cashflow as funds as only released or accessed as required throughout the build process.
Offset accounts
If you’re planning ahead and have savings available, an offset structure could help reduce interest while keeping your funds accessible as you wait for costs to come in on your renovation project.
Renovations can be a significant undertaking, but they can also create long-term value if done well and at the right time.
However, before you start knocking down walls, it’s worth understanding what your lending options look like.
At Threefold, we’ll work with you assess how much you can borrow, what an optimal loan structure might look like, anticipate the hidden costs, identify what requirements the bank may impose in order to secure the additional funds, and make sure you stay on track to still hit your financial goals.
Plus, if you book a complimentary mortgage, insurance or KiwiSaver review this month, you’ll also go in the draw to win a month’s mortgage repayments on us, up to the value of $5,000 – money that we’re sure would help with funding a renovation!
To book your free review, click here.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.