Financing your Renovation

Renovating your home in order to increase the size can be a prudent investment but it’s not always simple when cash flow is an issue. It is important to research your options when it comes to financing your project and with a varied range of private and government funding schemes available with low interest rates,now may be the time to think about your dream renovation. When thinking about the best borrowing option for you it is important to determine the total costs of your project including materials and labour, as well as securing the right renovation insurance which should be tailored specifically to you and your renovation.

Cash

Many people feel that paying in cash is always best. This isn’t true.  It is not always necessarily the most financially and savvy way of supporting your project. If you have a large cash sum in a high interest bank account, then you need to explore whether you would be better off leaving the amount in the account to accrue interest, against the comparison cost of a loan.You may incur a penalty if you were to draw on money held in a high interest saver, so investigate thoroughly.

Credit Cards

A main advantage to spending on a credit card for your project is the repayment system, which allows you to pay off as little or as much as you’d like to each month without a financial penalty (always check the credit card terms). If you have a credit card already then you might already have a high enough credit limit without waiting for a loan to be approved. Paying by credit card can ensure valuable legal protection if the company you’re buying from goes bust, or doesn’t deliver items you’ve paid for as promised, which means you may be able to claim from the credit card company.Interest rates are generally much higher through credit cards in comparison to other types of loans, so be aware, and also remember that not all suppliers will accept credit cards as payment. 

Loans
A bank loan is the most common way to pay for a renovation project, because you can set fixed repayments from your bank at regular intervals. If your budget allows,it’s shrewd to arrange weekly payments, as the repayment total equals the sum of the original loan and accrued interest, so over more regular payments you can reduce this amount more quickly than a single monthly payment, without costing you anything more.

Home Equity Loans
This option allows you to borrow against the total value of your property minus the cost of your outstanding mortgage, therefore this option realistically only suits homeowners who have already paid off a substantial amount of their mortgage. These loans can be a terrific low-cost preference to source funds for your renovation project, but it is important not to forget that this type of loan is seen as a second mortgage which includes all of the pitfalls, including the undeniable possibility of foreclosure if you miss any payments.

Unsecured Personal Line of Credit
With flexible repayment terms, these popular loans have either fixed or variable interest rates dependent on the lender, making this type of loan really useful for projects with payment instalments. An unsecured personal line of credit will allow you to borrow a prearranged limit and pay back either a portion or all of the balance each month above the minimum. As with a credit card, this will not necessarily charge you for making a higher one-off payment (depending on the lender).

Mortgage refinance
Re-mortgaging is one of the most common ways of financinga renovation project, as it can allow you borrow against up to 80% of your home’s value. These loans allow you to spread the repayments over a lengthy time period, which is often at a lower rate than a secured personal line of credit. Other unseen costs such as legal and appraisal fees are an important factor to consider and which can often be overlooked. Make sure you weigh up these fees against the cost of other borrowing before you commit to any kind of finance arrangement.

 

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