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New year, new home renovations

New year, new home renovations

If you’ve been thinking about renovating your kitchen, or making your home more sustainable and environmentally friendly, now could be the perfect time to start planning.

With property prices on the rise and interest rates at record lows, 2020 could be the year to make your dream home a reality, or to upgrade your property and increase your equity.

Why would you get a loan to cover your home renovations?

Improving your home with renovations can be costly, in terms of labour and material cost, so it’s common to borrow money to fund these projects.

There are a few benefits to getting a loan to cover your renovation.

  • Because you need to determine your loan size, it forces you to work out how much you need to spend in advance.
  • It motivates you to stick to your budget as you only have the loan amount.
  • You can complete your renovation on time as you’ll have the funds available
  • After the holiday period, cash flow can be tight and a loan can help with this

If your renovations are to increase your sustainability, there are now ‘green’ loans available that can help you purchase solar panels, energy efficient lighting or to fund other projects that reduce your environmental impact. The main benefit to sourcing these loans is that they can offer lower rates than standard personal loans.

If you are looking to get finance for a home project, you might consider getting a cash out refinance, a home equity loan, a construction loan or a personal loan.

Using your existing home loan to cover the costs

If you want to use your existing home loan to fund your home renovations, there are two popular ways to do this.

Get a home equity loan

A home equity loan is where you use the equity in your home as collateral on your loan. Equity is determined by calculating the difference between what the bank values your house at and the amount you owe on your home loan. As your property price increases and you make your mortgage repayments, you are effectively reducing your loan balance and increasing your equity.

These loans essentially act as a second mortgage on your home where you use your property to secure the loan and reduce the lender’s risk. Borrowing additional funds on your home loan can save you time and means you don’t have excessive forms to fill out, and could mean you get a lower interest rate than you would with a personal loan.

Access your redraw facility

Some home loans offer a redraw facility, which means you have the ability to make extra repayments on your mortgage above the required monthly repayment, at no extra cost to you.

If you have this feature, and have made many additional payments into your home loan, you may want to check if the money in your redraw account will fund the project you wish to carry out. If so, you may have the ability to withdraw these funds as cash to finance your home renovations, without taking out a second mortgage.

However, if you decide to redraw the extra money you have put into your home loan, check there are no excessive redraw fees that apply. Some lenders may also decline certain redraw request, so make sure you check with your lender that you are able to redraw these funds before you decide this is the best option.

Organising a cash-out refinance to boost your equity

Home renovation projects can present you with a good opportunity to review your home loan. Specifically, the new year is a good time to look at your current interest rate, as you may in fact save thousands by switching to a lender with a lower rate, or by switching to a different home loan with your current lender.

Refinancing can provide you with the opportunity to get a cash out refinance, increasing your loan limit and withdrawing the difference in cash. This essentially replaces your existing loan with a new loan, with different terms and conditions, so be sure to check the fine print before you sign anything.

The amount you will be able to withdraw will also depend upon the equity you have built in your home, how much you have paid off your Loan to Value Ratio (LVR) and your current loan term.

If you decide to refinance your home to get cash out for your home renovations, make sure that you do not commit to a much longer loan term. Agreeing to extend the length of your loan term could mean you incur tens of thousands of dollars more interest than your original loan, so be sure to check the loan in detail before you apply.

Funding an extension or additional structure with a construction loan

If you’re looking to build a small extension or a granny flat as a part of your home renovation, you might consider getting a construction loan to finance it. These types of loans cover the expenses you incur as you build, and are a popular alternative for those who are looking to have their funds released in ‘stages’.

Releasing funds in this way can ensure you save money and improve your cash flow whilst the constructed extension or additional structure is being built and not yet in use.

Construction loans often allow you to pay interest only until the construction is complete, however be sure to remember that interest only payments do not reduce the principal loan amount.

Some lenders may also only need a 5 per cent deposit of the total building cost to get started, which could help with your cashflow.

These stages are:

Slab – building the foundation of your home, including the base, plumbing and waterproofing - often approximately 10 per cent of the total amount.

Frame – constructing the ‘frame’ of your home including the windows, roofing and some brickwork - can be around 15 per cent of the total amount.

Lock up – covers the elements that are needed to ‘lock up’ your home, including external walls, doors and insulation - typically 35 per cent of the loan.

Fixing – shelving, kitchen, bathroom cabinets, tiles, cladding and all other internal fixtures and fixings are included in this stage - ordinarily about 20 per cent of the contract.

Completion – the completion of the building contract which includes all final installation pieces, including building property fences, cleaning, painting etc - usually the remaining 15 per cent of your loan amount.

Getting a personal loan to cover your renovation costs

If you only have a small project to complete, don’t have a home loan to borrow against, haven’t built enough equity, or don’t have a redraw facility, you might consider opting for a personal loan.

Personal loans may have slightly higher rates than home loans, but much lower rates than credit cards, so if you don’t have a home loan to borrow against, this could be a good option for you.

Variable rate personal loans secured with collateral may have the added benefit of allowing you to make additional repayments, so you can pay the loan off sooner and save on interest. These are known as secured personal loans, as the collateral increases the security of the loan, and reduces the lender’s risk.

This feature is often not provided with an unsecured personal loan, however, as the bank sees this type of loan as higher risk. These types of loans also have higher rates due to the increased chance you will default on your repayments.

If the reason you’re renovating your property is to make it more environmentally friendly, there are some lenders who offer ‘Green Personal Loans’ with lower rates than standard personal loans to encourage eco-friendly activity.

Investing in sustainable home renovations like solar panels and energy efficient hot water systems can reduce the overall running cost of a home. As such, this could likely increase the value of your property due to the cost savings that energy efficient products can bring.

This can make your home a more attractive investment for buyers in the market, and could potentially increase the equity in your home.

Which is the best option for me?

There are many different ways in which you can finance your home renovations, but as with all financial products, it's important that you find what works best for you.

Every individual is different, and the interest rates and products you will be eligible for will depend upon your income, expenses and your individual financial situation.

Before you apply for any financial product, make sure you compare all your available options, check for fees and charges that apply to each, and be sure to check the fine print.

Did you find this helpful? Why not share this news?

This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.



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Learn more about home loans

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.  

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

How do I apply for Westpac’s first home buyer loan?

If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan. 

You can use Westpac’s online mortgage calculators to estimate your borrowing power. You can also work out the time it might take to save up for the deposit, and the size of your home loan repayments

When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for. 

How to apply for a home loan pre-approval from St. George?

By applying for a home loan pre-approval, you can establish how much you can afford to borrow and look for houses within that pre-approved budget. Getting home loan pre-approval from St. George is a fairly simple process that can be completed within 15 minutes. 

The first step in this process is completing a home loan application. Once that application is submitted, a home loan expert from St. George will contact you to understand your requirements and your current financial position. You could also directly contact a home loan expert at the bank by calling 13 33 30 or by visiting your nearest branch. 

Once the application has been processed, the home loan expert will ask for some basic documentation to confirm your borrowing capacity. After this, you should be issued a home loan pre-approval, subject to certain conditions. 

Based on your home loan pre-approval from St. George, you can then find a property and make an offer. Your home loan expert will arrange to have the property valued and may request for more documentation, taking your home loan application to the next step. 



How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do you find cheap home loans?

With so many interest rate options and repayment types available, finding the cheapest home loan may depend on the type of loan you choose.

Whether you’re looking for an owner-occupier or investor loan, with interest-only or principal and interest repayments, on a fixed or variable interest rate, the cheapest home loan rate available may vary greatly.

One way to find the cheapest option for you is to narrow down your search and compare the options that best suit your individual requirements. RateCity’s home loan comparison tables can help you get started on your search and take the hassle out of shopping around.

Can I get a home renovation loan with bad credit?

If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan. 

Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it. 

Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

How do you qualify for a CBA home loan with casual employment?

Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.

Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like. 

Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.

Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.

How do I get a pre-approved home loan with Aussie?

Getting Aussie home loan pre-approval means receiving conditional support from Aussie Home Loans to borrow the money you need to buy a home. 

It’s an indication of the approximate amount Aussie may offer you, subject to some terms and conditions. Keep in mind, having a pre-approved home loan does not guarantee an actual approval of your loan when it comes time to buy.

Aussie home loan pre-approval often involves speaking to one of the lender’s brokers. You can make an appointment online. You’ll often have to submit your personal details and other information about your assets, income, liabilities and expenses.  It’s worth remembering that a pre-approved loan is usually valid for a few months.