Looking at re-financing, chat to the experts at Mortgage Masters!
People re-finance for various different reasons, a popular one being to renovate! Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property.
Refinancing isn’t as straightforward as you think. The type of renovation proposed goes a long way to dictating the home or personal loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.
Knowing your budget is critical – Before considering refinancing, you need to have a clear idea of your budget.
Mortgage Master’s expert Tracy Parish shares that, “If you underestimate your budget, you run the risk of getting knocked back from your lender.”
“I know a lot of homeowners who have estimated a budget of say $100,000 to do renovations, only to discover it will cost a lot more,” says Tracy.
“This means you may have to reapply for the loan, which banks generally don’t like.”
“Be conservative with your projection. If you think you need $100,000, I’d recommend to apply for $150,000 just in case, if you can afford it. The key is stick to your budget,” she adds.
The next step is to speak to your broker to determine which loan will suit your needs and objectives.
Not sure what Line of credit loan is?
Also known as an equity loan, to be eligible, one must be looking to make upgrades to the cosmetic domain of their property.
Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan.
These renovations, more often than not, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR).
A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into the one home loan.
To calculate the value you can borrow, subtract your current loan balance from your property value and then multiply by 80 per cent. For example, if your property is worth $500,000, and you have $250,000 left on your loan, your home equity is $250,000. You then multiply this total by 80 per cent. If you’re uncertain of your home value, contact Tracy at Mortgage Masters, who can assist you to arrange for an appraisal or valuation. For MFAA calculators, click here.
If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down.
Keep in mind, line of credit loans provide you with money that can gather interest quickly, so if you are ill disciplined with repayments or money, speak to the experts at Mortgage Masters to help you formulate a plan that matches your unique circumstances.
If you speak to a broker they will be able to determine which loan will give you the options you seek. This advice is essential, as a poorly planned construction loan could cost you more down the road.
“Consumers should ask their broker, ‘What type of loan am I eligible for?’, because if you don’t get your construction loan right, you may be jeopardising your bank security,” warns Tracy.
If you are looking to renovate your home and want to know more about your finance options, speak to the experts at Mortgage Masters today!
If you want to enter the property market for the first time and aren’t sure what your budget looks like or where to start, give Mortgage Masters a call and they can get you started!