If you feel that your home no longer meets your needs, you may not have to go through the lengthy, stressful process of finding a new home and moving. Renovations let you upgrade your current property to regain that cosy feel. However, renovating your home is a major financial decision. One option that’s available to homeowners who are embarking on a renovation is to draw on their current home loan for the necessary funds. Getting the financing that you need through your mortgage lender is a matter of being prepared to explain your plans.
Defining the Renovation
The first step to using your current home loan for new renovations is deciding what you actually want to be done. If you kitchen is outdated or not functional for your lifestyle, you should make a list of problem areas that you want to renovate. For example, homeowners who have counter space that blocks direct access to an adjoining room may want to have the space redesigned to open up the area.
It’s best to choose renovations that add value to your home. One reason to keep this in mind is the fact that you’ll be boosting the value of your investment. Another reason is the fact that the bank that still holds an interest in your property is more likely to be willing to lend when a renovation is providing a financial benefit.
Budgeting Your Renovation
There are two benefits to budgeting your renovation before you borrow. The first benefit is that you will display to your mortgage lender that you have a strong financial plan for the money that you will be drawing. Another benefit is determining just how much you will need to keep your borrowing under control.
The problem with budgeting your renovation is that there are many small costs associated with renovation projects. Even if you budget for the larger expenses, small costs add up over time. Keeping these costs under control is a matter of being prepared for the unexpected. A great way to do this is by asking your friends and family members about their experiences with similar renovation projects.
Take the time to evaluate whether you will be likely to live in your home while it’s being renovated. Finding a place to stay during the renovation is another expense that you’ll have to factor in.
Using Your Current Home Loan
You have several options when it comes to using your current home loan for renovations. If you’re ahead of your mortgage payments, you can redraw on the amount that you’ve overpaid. You also have the option to refinance your mortgage. Homeowners are generally able to refinance for a higher amount than they owe as long as this amount doesn’t exceed the value of the home.
Your final option is taking out a home equity loan. You’re typically able to borrow 75 percent of the equity that you have in your home. For example, imagine your home is worth $500,000. If you only owe $300,000 on the loan, the equity is $200,000. You can borrow up to $150,000 in this scenario.
Homeowners can get the best deal on a refinance by using a mortgage broker. Visit Mortgage Choice to find a lending option with low interest rates and fees.