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If you are a homeowner at the moment you’re either renovating or you’re thinking about it.

Low interest rates and stable house prices have spurred on Australia’s reputation for being the “renovation nation” – and expenditure, including for minor renovations, topped $36.3 billion, according to the Australian Bureau of Statistics.

According to a Houzz study in 2020, nearly half of homeowners reported getting stuck into a home renovation project, usually three rooms on average. (48% of those surveyed.) Thanks to the COVID-19 pandemic, most of them were motivated to get renovating because they finally had the time and a wish to customise.

The Government HomeBuilder grant also gave homeowners incentive to conduct the renos they have been putting off for years.

Unfortunately, the HomeBuilder grant has expired as of 31st March, 2021. So how can you do a great reno without letting costs go rampant?

Only spend 10% of the home’s value

For the best budget renovation, it’s wise to only spend 10% of your home’s current value – not the future estimated value. This gives you a set budget that won’t break the bank. Once you’ve planned everything out, set your plans in stone. Changes of mind can blow your budget out by 50% through waste, delays, and extra labour. Take your time – according to Houzz, planning for kitchens took 11.1 months, while construction only took a half of that on average.

Decide on what needs renovation and why

If you’ve bought a “fixer-upper” and everything’s old and cracked and worn, then it’s obvious what needs renovation.

If your home is relatively new – built in the last ten to 15 years or so, you can be a bit more judicious in what you renovate.

If your bathroom is done up but your kitchen is cramped, unsightly, and appliances aren’t doing what they’re supposed to, you may want to opt to just focus on that – and there are certain partial renovations such as replacing benchtops or replacing cabinets to create more space. The layout remains the same but opens up more possibilities. It also costs significantly less than tearing out fixtures and pipes.

Modern touch ups

If you don’t think structural changes are needed to your home, you can give your home a new modern look by painting rooms, replacing old curtains or drapes, or installing LED lights to save money. Adding plants, pictures, centrepieces, rugs, and other bits and pieces can give your home a whole new look for a fraction of the price of renovating.

Don’t dip into equity – experts

The “bank of equity” is the first option homeowners think of to fund their renovation. Even if you have substantial equity in your home, adding another 10% back on to the mortgage bill could cost you tens of thousands in extra interest and extend the term of your home loan.

Bill Tsouvalas, personal finance expert and Managing Director of Savvy says that the temptation to redraw on one’s mortgage is a temptation that’s “fraught with danger” and will lead to financial pain down the line.

“Though a reno will improve your home’s value, you won’t see the benefits unless you’re flipping the house quickly for a profit,” he says. “Drawing on your mortgage can add tens of thousands to your interest, whereas opting for a personal loan means you’re paying for less than a quarter of that in interest – perhaps even less.”

To make it simple, let’s say you have $750,000 owing on a 25-year mortgage at 2.75%p.a. on a $1 million home. You decide to spend $50k on renovations. If you opted for redrawing on your mortgage while maintaining the current payments, it would add three years to your loan and $60,425 in interest.

Going for a personal loan for 7% p.a. for five years will cost only $10,004 in interest.

“As you can see, if you want to avoid paying huge interest, the personal loan is the way to go,” Tsouvalas says. “As always, you should consult a financial professional before making a decision.”

This is a sponsored article produced in partnership with Savvy.

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