So you’ve decided to renovate. Do your plans include a new kitchen, bathroom, extension or a bit of DIY? No matter how big or small your project, you may need to borrow money. Here are a few options to consider.
Equity is the difference between the bank’s valuation of your house and the amount you owe on the loan. Equity can build up over time because either your home value has risen or you’ve reduced your loan balance.
Using equity to pay for your renovation depends on how much you can borrow.
You need to be able to pay any increase in debt, so having $100,000 equity doesn’t necessarily mean you can borrow that much.
Redrawing from your home loan for renovations may be another option, but it depends on how much you have available to redraw. Not all loans have a redraw option; they’re available on our variable rate home loans but not our fixed rate loans. See how much you can redraw in your internet banking.
If you choose this option the balance on your loan will increase. That means you pay more interest and your repayments are likely to increase.
You might consider refinancing your existing home loan to get extra funds for your renovations. A refinance might involve moving your home loan from another lender to us. Alternatively, you may already have a NAB home loan but might need to change it, say from fixed to variable rate.
Refinancing your home loan could also include debt consolidation. You could reduce your costs by putting all your debts, including credit cards and personal loans, into one repayment.
If you don’t have enough equity in your home, or you don’t have a redraw facility, then perhaps you could consider a NAB Personal Loan. They’re great to get smaller renovations underway, and you can apply for the loan once you have an estimated project cost. We offer personal loans from $5000, and the funds are deposited as a lump sum directly into your account.
Interest rates on personal loans are higher than home loans because they’re unsecured credit. The maximum loan term is seven years, so even though the interest rate is higher, the interest charged over the life of the loan will be lower. Also, be aware that your loan repayments are higher because the loan term is shorter.
If you’ve decided to renovate your home, then a building and construction loan (BICOE) could be the way to go. How do construction loans work? You receive your loan in increments, letting you pay invoices for the renovations as they come in.
Paying each bill as it comes in means you don’t pay interest on your building costs until work’s actually been done. This give you better cash flow.
Keep in mind that as you draw down more of your loan, the amount of interest you pay will start increasing. You’ll need to budget for that.
The HomeBuilder grant is a $25,000 cash bonus for people that are doing renovations on their existing homes, or building new homes. The Federal Government is providing the grant to boost the construction industry after the effects of COVID-19.
You can check if you meet the eligibility criteria, read more information about the HomeBuilder grant, and put through an enquiry online.
Just as you get professional advice about your renovation project, ensure you do the same with your finances. If you’re unsure what type of loan will suit your renovation project, then visit a branch, get one of our mobile bankers to come to you or call us on 1800 771 900.