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Renovation high on the agenda

Renovation high on the agenda

Latest official figures show Australians continue to focus on renovating homes to build value, and the prospect of improving our properties is inspiring us to save.

A new study by mortgage provider Loan Market has revealed that about two in five home owners are saving for a major renovation this year.

Along with investors, generation Y first home owners were among the keenest would-be renovators, with the latter opting for property in need of some improvement or repair at the lower end of the price scale, the study found.

“They’re often buying smaller units which have undersized or no backyards and are much easier to renovate because of the size of the unit,” said Loan Market corporate spokesman, Paul Smith.

Renovating can be a great way to add value to a property. But it’s important to understand the pitfalls, because even the most careful renovations can devalue a home.

Finance expert David Koch, says the problem arises when the property value doesn’t rise to meet cost on the renos. He recommends setting a budget and sticking to it.

“Work out how much you can afford to spend before you get too excited about the value a renovation will add to your house,” he said.

“Don’t overcapitalise. Get a couple of agents to come to value your house, tell you what you can do to improve the price and give you an idea of what it would be worth after the renovation.”

As a rule of thumb, property experts recommend capping renovation spend at 10 percent of the value of the home. So if your property is valued at $400,000, you’d be wise to limit your budget to a maximum of $40,000.

Then you’ll need to find the cash to pay for it, says Money magazine editor Effie Zahos.

“Of course the best way to fund renovations is through your savings. That way you won’t pay interest on the work you do, which makes your profit margin all the sweeter,” she said.

But it could take several years to save up a renovation kitty, if you put away money each week in a savings account.  An easier and faster way, she says, is to redraw any equity out of your home loan.

“But take care. Borrowing an extra $25,000 on your mortgage may only increase your repayment by $45 a week, but over 25 years that can add $40,000 to your total interest bill,” she said.

Other finance options, she adds, include topping up your existing home loan, taking out a second home loan or a personal loan and even whacking it on your credit card. Whichever option you choose, though, it’s important to do your homework and compare your options using a free comparison site such as RateCity.

Finally, Koch suggests getting in the experts to do the job and “hiring smart”.

“Try to get at least three written quotes. Give each company the same information to make sure you’re comparing apples with apples. Make sure you get a total price that includes all work to be done as well as materials,” he said.

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Learn more about home loans

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.