Here is a topic that is always considered “hot” in the Land Down Under. Surely everybody loves the idea of remodelling their home, either because they wish to enjoy it more, or they have a future sale in mind. Be that as it may, no other nation is more prone to house renovation projects than the Aussies.
It appears that home makeover shows have changed the awareness of home owners quite a bit. The figures speak for themselves. Currently, the home improvement market is worth $43 billion, and it’s expected to reach $50 billion in the next 10 years. If this doesn’t sound too impressive, how about the fact that there has been an increase of 147% in home renovations since 2010? Australia has 49 hardware or home improvement stores per 1 million people, which is much bigger ratio than in the UK or the USA. According to a survey, 72% of Aussies would rather spend $15,000 on a home reconstruction project instead of going on holiday.
With so many avid and keen home owners, the demand for home renovation projects is met with a myriad of options for borrowing the necessary funds. Depending on the renovation plan, the amounts may vary. Personal loans such as borrowing from a friend or a family member aren’t the issue here, and neither are the options on how to limit your spending. If it were that simple, you wouldn’t be reading this, would you? Instead, we are going to take a look at two types of loans which you could use for bigger projects, such as a kitchen or bathroom makeover, and suggest some creative ways how to earn the extra cash you need without going into debt.
HELOC (Home Equity Line of Credit)
Home Equity Line of Credit, or HELOC, is renowned for offering the lowest rates in comparison to the other options. Of course, they vary depending on a lender, but generally speaking, these rates are much better than what you could expect with a credit card. This is an option you can consider even if your redecorating costs exceed $50,000, and your home is the factor which guarantees you will repay the full amount. Actually, that is the reason why the interest rate is so low – you are betting it all on your home. Let’s take a look how it works.
Say you have equity in your home. Even though you are still paying off the mortgage, it’s perfectly possible to qualify for this type of loan. For instance, if your home is estimated to cost $200,000 and your mortgage at this moment is $150,000, that means you have $50,000 in equity. However, normally lenders secure themselves by limiting the amount you can borrow to around 85% of the property value. Therefore, since 85% of $200,000 is $170,000, and we subtract the total mortgage (those $150,000), we are left with $20,000, which is the amount that can be approved.
Home Equity Line of Credit is often compared to credit cards due to the reason you don’t get the whole amount at once. Even though you borrow the total sum, you can access it periodically.
If you like the sound of this, it would be a good idea to apply. As we have mentioned earlier, the interest rates are low, but not the same for everyone. Normally, they are adjustable, though there are still instances when they can be fixed (even on your own demand if you prefer). The good news is some amounts can be tax deductible, but it’s best to check in advance.
HEL (Home Equity Loan)
The spelling may not necessarily give you any hints about this loan. As the name suggests, your home equity is the reason why you are being approved. It has some similarities with the previous one, but it’s not exactly the same, as we shall explain.
For instance, this is a fixed rate loan, and the rate is usually higher than it is the case with HELOC. On the plus side, interest rates are lower compared to credit card or personal loans. There is also an interesting option of paying wages into your account to decrease the interest rates. In case when you can pay extra in addition to your fixed monthly repayment, that decreases your loan term, too.
Also, you can have the whole amount immediately instead of waiting for another month or year to pass. If you need to invest the money all at once, this would be the way to go. Of course, provided that you are able to make the payments later in the years to come.
Typically, the process of getting a HEL loan is very fast, which is ideal in cases when you have an excellent offer from a builder that you don’t want to miss out on. Should you need some extra cash, you can apply for that, too.
By the way, if anyone starts recommending you the “second mortgage” loan, this is actually what they are talking about. HEL loans are known as second mortgages, too, because people usually add them to their first mortgage. In addition, transaction fees and closing costs are what makes it similar to the first mortgage. Nevertheless, that does not mean you need to have a first mortgage to qualify for Home Equity Loan.
Finally, one thing these two loans have in common is the equity, and you mustn’t forget about it. They are provided based on your home value, so you have to make the home loan repayments on time in order not to lose it. On the bright side, there are usually lots of options how to best adjust home loan repayments to suit you and your current financial state, so they’re worth looking into.
Earn extra cash
If you have some minor alterations in mind, you could consider earning extra cash as opposed to applying for loans or using your precious credit card. Surely, it will take some time to add up, but it’s definitely worth it. There are no interest rates of debts, but you had better be very responsible when it comes to saving and spending. Patience is a virtue, too, since this process takes some time.
Therefore, let’s see some suggestions on side hustles you could add to your 9-5 routine.
- Renting – if there is an extra room you aren’t using, thing about getting a roommate. Another option is or putting it on a website offering accommodation to travellers. You will meet some interesting people, and still be able to keep your privacy since you can choose the times when your home is accepting guests. Besides this, you could rent a parking space or a garage. There is probably someone in the overcrowded neighbourhood who is willing to pay good money for it.
- Pet sitting – This is an ideal job for all animal lovers. Actually, you could easily be reading a book, chatting on the phone, or watching TV comfortably at your work. Dog walking is also recommendable, especially if you already have a pet which enjoys canine company.
- Online surveys – You have already heard of them, and now is the time to start clicking. Do a bit of research and find the most profitable surveys. The internet is full of simple enquiries which can bring you extra money.
- Online lessons – The mere fact that you are a native speaker of English language makes you eligible for earning over $20 per hour. There are massive numbers of websites, mobile apps and online schools which you could use to increase your monthly revenue. The hours can be very flexible, so you can do it at your own pace. What is more, you needn’t be an English teacher or have any previous experience. If you enjoy working with people and making small talk, this could be your perfect side hustle.
- Car sharing – Driving to work every day can be used to earn the money needed for simple redecorations. Your commute will be more enjoyable if you make it your job. Since you have to travel to work anyway, why don’t you sign up for a car share app, and offer a ride to the others? For a nice compensation, of course.
There you have it. These are the ways you should consider if you’re thinking about remodelling your home. If you’re Australian, the thought has certainly crossed your mind on more than one occasion. Home Equity Loans and Home Equity Line of Credit are definitely the best options when it comes to borrowing from a lender. As for the minor alterations, we have provided you with simple, but effective solutions.
The last word of wisdom: whichever option you go for, you should carefully consider all the factors before making the final decision. Be honest to yourself about your money management abilities. When you decide on the renovation project, make sure you include all the possible additional costs into the equation. Only then will you have a clear picture of how big an investment you have to make, and be able to act according to it.