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By Trent Bartels 12 Oct, 2017

How to refinance 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 might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your budget

Before considering refinancing, you need to have a clear idea of your budget.

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. 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, you should speak with your builder to ensure that this is enough and allow for any contingency costs. The key is stick to your budget.

The next step is to speak to your Finance in Sydney to determine which loan will suit your needs and objectives.

Construction loans

Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.

Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.

The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, the broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.

When applying for a construction loan, council approval and a fixed price-building contract are required.

Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your installment. When construction is complete, speak to Finance in Sydney as we may be able to refinance back to the loan of your choice.

Typically the bank will require an “As is and at completion” valuation over your property.

Broker advice

If you speak to Finance in Sydney, we will be able to determine which loan will give you the options you seek.

It’s vital that you get this piece of the puzzle right the first time as it can be a costly exercise should you get it wrong. Let Finance in Sydney show you the right way to finance your renovations.

Disclaimer: This article is not to be taken as financial advice. Every applicant’s personal situation will vary significantly and we would recommend that you sit down with an expert from Finance in Sydney before making any decisions. All loans are subject to the normal lending criteria.

By Trent Bartels 11 Oct, 2017

Consolidating your credit card debt, car loan or personal loan into your mortgage can be an effective way to reduce your repayments - provided that you restructure your debts the right way.

Generally, the main reason you may choose to consolidate your debts is to reduce the amount of interest their paying.

A lot of borrowers make the mistake of restructuring their new debt the wrong way,  and as a result, they can end up paying more  interest in the long run.

“When homebuyers are looking to purchase a property, they’ll often finance their home loan over 30 Years. A common mistake we see when clients want to restructure their debt for their credit cards, car loans or personal loans is that they also finance it over 30 years,” 

“Generally when you decide to finance something, it’s a good idea to structure the length of the loan to match the life cycle of the item. For example, if you purchase a car you might structure the financing over five years, because at the end of the five years you may consider selling the car.”

A good rule of thumb is to finance an asset over the life of the asset.

If you were to structure the financing for your car over 30 years, it means that if you sell the car in five years time, you’ll actually end up holding onto the debt for an additional 25 years – which dramatically increases the overall interest you’re paying for the car.

“We recently had a client that came to us wanting to refinance their existing home loan, and they were looking to consolidate a credit card debt of $7,500 and a car loan of $23,000 at the same time,”

“Initially, their friends had advised them to consolidate the debt directly into their home loan when refinancing, which would have meant they were financing this debt over 30 years. The advantage for our clients was that it reduced their overall monthly repayments substantially, as they only had one mortgage payment to make.

“We sat down with them and when we explained that they would be paying for their purchases on their credit card or for their car for the next 30 years, they soon realised that this wasn’t the best way to structure their finances!”

We came up with a plan that allowed our clients to refinance their home loan, consolidate their debts and reduce their overall monthly payments – but without paying unnecessary extra interest in the long term.

“We recommended that they take out two separate loans – one for their home loan, and the other to consolidate their credit card and car loan debt into a more appropriate term, which ended up being five years,” he says.

By doing this, they restructured all of their personal debts into one easy monthly payment, and reduced their exposure to the high interest rates that were payable on their credit cards.

The final step was for the client to cancel their credit cards, to ensure that they didn’t rack up a fresh debt on their cards, and end up exactly where they started.  “The last thing that we want is for our clients to clear their credit card debt, only to have them spend back up to their limit again!”

Another key point to consider when refinancing is to consider how long you have had your loan for. If you are 5 years into a 30 Year Loan Term (so you have 25 Years remaining on your loan) is it a good idea to refinance your loan back to a 30 Year Loan Term. By doing this it will reduce your overall repayments however you will end up paying more in interest.

Disclaimer: This article is not to be taken as financial advice. Every applicant’s personal situation will vary significantly and we would recommend that you sit down with an expert from Finance in Sydney before making any decisions. All loans are subject to the normal lending criteria.

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