How to finance a renovation

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Video transcript - how to finance a renovation

As your life changes, the place you call home might need changes too. It’s reno time! But how do you finance it?

Using your savings could be a good place to start as it reduces how much you need to borrow.

If you’re ahead of your home loan repayments you could choose to redraw.

You can borrow against your home’s equity.

Or for bigger projects, consider a construction loan.

Whatever your reno dream, find a bank to make financing go swimmingly.

Bendigo Bank – the better big bank.

What’s your reason for renovating?

The first question to ask yourself is why you’re renovating. Are you designing your forever home, or are you adding value to a property that you plan to sell? Understanding the motivation behind your renovation will have implications on your budget.

Once you’re clear on the why behind your renovation project, get clear on what you hope to achieve. Is it about adding rooms or space? Is it about adding cosmetic value? Is it putting your own personal stamp on your forever home? When you understand what outcome you’re hoping for, you can manage your budget more confidently, and make objective decisions along the way.

Consider how much your renovation will cost

The next step is to start getting a ballpark idea of what your renovation will cost. Before you look into how to finance your renovation, you’ll need to have an idea of what you need. The cost of your renovation will depend on a few things:

• Whether it’s a simple cosmetic renovation or one that requires structural build work;
• Whether you’re going to carry out the works yourself or pay professionals;
• Your own personal taste – designer fittings will inflate your budget;
• Required permits and permissions;
• The complexity of any structural work, and any risks along the way (e.g. asbestos);
• How quickly you want the works complete.

You’ll also need to consider the indirect costs of your renovation. This includes paying rent if you can’t live in the property during the works, or any additional costs you may incur from staying with friends or family.

Depending on the complexity of your renovation, you may be able to obtain ballpark costs by speaking to a builder, architect or designer, or by using DIY planning tools online. Don’t forget to speak to your local council about planning and permits that may be required, and allow plenty of time to get these approved.

It’s also important to include a buffer of 10-15 per cent, and make allowances for building delays, too.

Ways to finance your renovation

There are several ways to finance a renovation. The right solution for you will depend on your financial situation, the complexity of your renovation, and the outcome you hope to achieve.

Savings or redraw

For smaller renovations, you may elect to use personal savings to fund the project. Alternatively, if you’ve been making extra payments to your mortgage, you may be able to access them via your redraw facility.

Home loan top up

A home loan top up allows you to use the equity you’ve built up in your home by adding additional capacity onto your home loan. This can provide you with a lump sum to fund your renovation. However, you’ll need to be able to afford the additional repayments.

Home equity loan

A home equity loan allows you to borrow against the equity in your home via a separate loan facility. Generally, equity over 20 per cent of your property’s value is considered usable equity. So if you own a home worth $1m but you only owe $500,000 on your mortgage, you may be able to borrow against $300,000 worth of your equity.

Construction loan

A construction loan works slightly differently. It’s a structured loan that allows you to pay for building works in instalments at different stages of the build. Construction loans often take into account the current value of your property and the new value after the renovations. You’ll also need to provide plans and permits to obtain a construction loan.

Go back to the budget

Once you’ve settled on the financing option that’s best suited to your project, go back to your budget. Cross reference your original budget with the amount your lender has agreed to offer you, to make sure there’s enough breathing room to complete the project. Delays and overages are common during renovations. Failing to plan for them can cause undue stress.

Things to consider

Whatever your reason for renovating, it’s important to continually check in with your ‘why’ and make sure it’s aligning to your budget. Renovation costs can spiral out of control quickly. If your intention is to make a profit from your renovation, you need to keep a close eye on things. It’s also important to factor in market conditions. A projected value increase isn’t guaranteed, so ensure you’re prepared to bolster the impact of a market downturn if conditions impact the outcome of your renovation.

Need more information? Chat to our lending team for any other questions you might have.