A home or investment property purchased some decades or even years ago may need upgrading to its features such as the colour scheme, wallpaper, fixtures and fittings and storage areas. Perhaps it may even need some structural changes to better suit the current trends and lifestyles such as installing a walk-in wardrobe or a spa in the bathroom.
Renovations can be achieved on a 'do it yourself' basis, the use of professionals or a combination of both. However it is achieved, if completed correctly, renovations can optimize the potential of the home or investment property.
Depending on the extent of the upgrading or renovations undertaken the costs could run into thousands of dollars. Simple alterations to the colour scheme or wallpaper will obviously be less costly than installing a spa in the bathroom.
Accessing the Required Funds
If money is a problem, using available equity in the property is an option. This can be done in several ways:
- increasing the current home loan by way of a 'top up,'
- setting up a separate loan for the required funds,
- if substantial funds are required, arranging for a Line of Credit.
Mortgage Increase or 'Top up'
This simply means that the current home loan is increased by the additional amount required for the renovations. However, it must be kept in mind that the extra amount will be stretched out over the entirety of the home loan term. The loan is paid in one lump sum into an account and repayments are structured and have to be made monthly whether the money in the account is used or not.
Additional Renovation Loan
Instead of adding the funds required for the renovations to the existing home loan, a separate loan is set up for that amount. One of the advantages of doing this is that it can be structured over a shorter period so that it can be paid off sooner.
A Line of Credit for Renovation Purposes
A line of credit works like a credit card. A specific limit is set for the amount that can be borrowed. Funds are withdrawn as and when required and interest is payable on the outstanding balance at the end of each month. Whilst the interest is paid at the end of each month, repaying the capital amount is up to the borrower until the limit is reached. When the limit is reached, however, then a portion of the capital has to be repaid (much like with a credit card). Any paid up capital can then be redrawn whether for renovation or other purposes.
Borrowing a little money to complete some cost-effective renovations is a great way to add value to property.
Pauline Mascarenhas - Born in Sri Lanka, moved to the UK and now lives in Western Australia. Mortgages and Finance are her area of expertise but loves travel, ...
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