If you’re looking to add either extra space or extra value to your home, you have to speculate in order to accumulate. Whatever the reason, renovation will always be a smart investment. It is important to do some research first and explore several options when it comes to financing your project. There are a range of private and government funded schemes available, and with interest rates at record lows right now, there has never been a better time to put your renovation plans in motion.
In order to determine the best borrowing option for you, you must think ahead; what are the total material and labour costs likely to be, and how much of a contingency fund should you allow? There could be costs you might not have thought of, from finding the right kind of insurance for your building down to the builders clean when the work has all been finished.
1. Bank Loans
Bank loans are the most common way to finance renovations because you will repay a fixed amount from your bank account at regular intervals (usually monthly).
2. Cash
Cash isn’t always the best way to pay, contrary to belief. Depending on where you’re keeping your money it may not be financially practical to withdraw a large amount in one go; it may be more sensible to leave it in a higher interest account where it can accrue some interest. You may also need to speak to your bank manager if your money is held in a high interest savings account, as early withdrawal could incur penalties.
3. Credit Cards
The repayments system on credit cards is the best advantage when making large purchases. You can pay off as much or as little as you like each month (as long as your payments meet the minimum payment amount set out by your card company). If your credit rating is healthy there shouldn’t be a problem in securing a new credit card deal, or you may have a high enough credit limit on your current card. Sadly, credit cards nearly always have much higher interest rates than other types of loan, so any large spend should be approached with caution!
4. Re-mortgaging
One of the most popular ways to finance a renovation is to re-mortgage your property. This will allow you to borrow against up to 80% of your home’s appraised value. The benefit of topping up your mortgage is that your repayments will be spread over a much longer term than a personal loan. Don’t forget that there could be penalties if you want to overpay or pay off the whole loan early. Also, any missed payments could lead to foreclosure.
5. Unsecured Line of Credit
This is also a popular loan which has flexible repayment terms with either fixed or variable interest rates depending on the lender. The loan allows you to draw funds up to an agreed limit without having to take the full amount in one lump sum. Essentially, it works in a very similar way to a personal credit card.
