After a family has been in a home for some time, they often feel a need for some renovation works. This can be due to growing families and their needs for space, elders requiring to be cared for, because the house looks run down and in need of refurbishment, or simply because you think you need to upgrade your lifestyle. Whatever your reason, here are some thoughts about how to arrange for financing for major home renovations.
Any major home renovation project must be approached with thought and consideration for the finance required for it. After all, there is no point in having some significant work done on your house if it is going to cause you financial hardship as you will not be able to enjoy the fruits of your investment. So before you get to far down the track, here are some financing ideas for you.
Make a list of all the improvements you want in your home. Most major improvements in homes start from kitchens and bathrooms, while some may need building extra rooms, a den or study, jazzing up the living room, building a deck or adding a conservatory. Make sure that the requirements of all the family members are considered, especially if there are teenagers in the family. Once you have this list, properly discussed and prioritised, find a home renovation contractor who can give you quotes for the work. Ask them to break it down into various areas of the renovation so you can make a decision about whether to go ahead with that particular aspect of the total job.
You also need to make sure that you will have no problem for permissions from local authorities, if they are necessary. The Auckland Council has some helpful building consent guidelines on this website.
Now that you have the quotations for the work, look at the finances that you need to arrange. Examine your own financial situation. Do you have extra cash lying around that you easily use? Do you have any assets like stocks or bonds that you can liquidate? If this enables you to easily go ahead with the project, appoint a company that carries out home renovations. Auckland has a number of companies to consider.
Home renovation projects can cost a fair bit of money, when many areas of the home are involved. Taking or arranging finance from lenders allows you to use money from your future income, a situation that makes things comfortable all around, and does not force you to dip into savings. There are number of alternatives that can be considered for this. They can be:
- Borrowing against retirement funds
- Home improvement loans
- Credit from home equity
- Second mortgage
Depending on your age, the amount available in retirement funds can be substantial and can fund home renovations. The downside is that these funds have to be repaid with interest and can deplete the nest egg you have put by for your old age. It may also affect your tax liabilities. Get proper advice from your tax adviser before you select this option.
Government agencies might allow you to get loans for some home improvements jobs, but amounts available may be limited and these loans have a number of qualifying conditions that you will need to meet.
The home can be offered as collateral after due valuation by your mortgage lender and the amount less the mortgage still due can be taken on as a line of credit for your home renovation.
Most home renovations are undertaken after homes have been owned for a long time, and if you have been regular in paying your mortgage payments, you will have sufficient equity built into it. Take a second mortgage against this equity but be careful of the interest rates you negotiate.
If your mortgage has been taken at times of high interest rates, go for refinancing at a lower rate and repay the old mortgage, leave the total amount of the loan as it is, and any saving from the refinance can be used to fund the renovations.
Once you have the finance sorted then you will need to appoint a suitable home renovation firm to undertake the works.
Home renovations usually add to the value of a home, and that is why financing is rarely a problem with lenders. They understand that you are improving assets that you have pledged with them.
You will also have the benefit of extra comfortable living and added convenience from having a major home renovation.