It’s no secret that Kiwis have a passion for home renovations, and with people spending a lot more time at home lately (for obvious reasons), this appetite has become only more pronounced.

According to a survey conducted in September 2021 by independent economist Tony Alexander, after lockdown, a net 27 per cent of people planned spending more on home renovations in the following three to six months.

If you’re one of them, here are three common options to fund renovation costs (if you can’t, or don’t want to, cover those with your savings).

Personal loan

Depending on how big your renovation project is, a personal loan can be an option. In terms of overall costs, interest rates on a personal loan are usually lower than a credit card, but higher than a mortgage.

That’s why it’s important to keep both long and short-term affordability top of mind. While it can be tempting to choose a long loan term (and reduce the repayment amounts), the longer the term, the more you will be paying in extra interest over time.

The other risk to consider is the potential for budget overruns. Often, renovations tend to cost more and take longer than anticipated – something else to factor in when applying for a personal loan.

Credit card

Credit cards can be another option, and if you repay it in full every month, you can take advantage of the interest-free period (usually up to 55 days).

However, before going down this route, there are some key things to consider. Based on the size and cost of your project, paying your credit card in full each month may simply not be possible. In this case, you would be charged an interest rate that could be significantly higher than a mortgage or a personal loan option.

Overall interest costs can add up quickly. And if, for any reason, you resorted to paying only the minimum monthly payment, you’d drag the debt out and the final cost could be significant.

Mortgage top-up

If you’ve owned your home for a while, its current value is likely to be higher than what you paid for. This means you’ve built some equity in your property.

In this scenario, depending on your circumstances, you might be able to tap into the equity you’ve built and apply with your lender for a mortgage top-up. This allows you to increase the credit on your existing mortgage, and you can use this extra available amount to fund your renovation project.

However, keep in mind that there are increasingly complex rules around this. Our SHARE mortgage advisers can help you understand what the application entails, including what information the lender requires of you and their criteria for approval.

We’re here to help

If you’re looking at giving your home a spruce-up before selling, or even just to create a more comfortable living space, there are funding options available. Of course, using your savings can help you avoid interest costs – but it may not always be possible.

When planned properly, borrowing money can be the quickest and most efficient way to add value to your home. Like to learn more about your options? Click here to find your local adviser.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.