With the peak of the Australian property market in most capital cities passing for now, you may be searching for ways to add more value to your home.
Analysis by CoreLogic and Archistar found that more than half a million homeowners across Sydney, Melbourne and Brisbane “have enough land to build another dwelling on their property”, such as a granny flat.
Building a granny flat may increase the market value of your home by 30 per cent, according to CoreLogic/Archistar modelling. You may also be able to rent out your granny flat or put it up on AirBnb and other short-term accommodation sites to take in some additional revenue from tenants.
The analysis also found that building a one-bedroom granny flat costs around $120,000, and an extra bedroom costs around $80,000 or more.
Forking out this kind of cash is a hard ask for may Australians, so here are two common ways you can finance your new build:
- Redraw on your mortgage
If you have made extra payments on your mortgage and have a redraw facility, you can access the extra money you’ve paid and use it to finance your renovations.
This can be a competitive option if you want to avoid the hassle of additional debt, such as putting your renovation on a credit card or taking out a personal loan.
What is a redraw facility?
However, keep in mind that you will lose the benefit of reduced interest charges on your mortgage because your loan balance will go up. Some lenders will limit the amount and frequency of redraws, as well as charge fees to deposit and withdraw.
If you want to take the redraw route, but your home loan does not offer this feature, you may want to consider refinancing to a home loan that allows this. The issue would then be waiting a few more years to build your granny flat after you’ve made enough additional payments to fund this project.
Search and compare home loans with redraw facilities now.
- Access cash without taking on new debt
- Easier and faster than applying for a new loan
- No longer reducing your mortgage interest
- Can be fees or limitations associated
- Personal loan for renovation
If you don’t have the funds up front, you may consider taking out a personal loan for renovation.
A personal loan may allow you to take advantage of flexible features – such as the ability to make extra repayments, choose between a fixed or variable rate and choose between a secured or unsecured the loan. Personal loan terms are also much shorter than that of home loans, although interest rates may be much higher.
If you were thinking of putting your granny flat costs on plastic, keep in mind that personal loans carry lower interest rates than credit cards. The average personal loan rate on RateCity’s database sits at just over 12.14 per cent, while the average credit card rate is 16.82 per cent.
There can be a range of ongoing fees associated with a personal loan, such as annual fees. Consider researching different types of loans and compare some that you think may be the best fit for your financial needs and budget before making a final choice.
Find a personalised rate today thorough our Personal Loan Marketplace.
- Flexible features
- Fixed term to pay off loan
- Lower interest rate than credit cards
- Potential fees
- Higher interest rate than home loans on average
- Can add to existing debt