There are a lot of homeowners who are struggling with the idea of renovating their mortgaged property for fear that it could bring about certain consequences that could affect their standing.
While it’s natural to be anxious when you are undergoing a renovation while still paying off a mortgage, without an understanding of your ownership rights while your property is under mortgage you might steer clear of taking the risk and play it safe.
However, with proper planning and execution, you can smoothly undergo a renovation while your property is mortgaged.
Are these concerns valid?
Let’s face it, undertaking a renovation while your property is mortgaged can be challenging, primarily when the renovation involves significant structural changes.
While a renovation can increase the property’s value, it can also be costly and add to your mortgage balance.
If not planned correctly, the renovation can lead to financial strain, affecting your ability to keep up with mortgage payments.
For instance, a homeowner from Sydney decided to renovate her home while paying off a mortgage. She wanted to expand her kitchen and add a new bathroom, which would increase the value of her property.
However, her renovation plans were not well-thought-out, leading to unplanned expenses and delays.
She was already struggling to keep up with her mortgage payments and ended up defaulting on her loan, leading to foreclosure.
Basing from the case above, you can only imagine how everything can go south and you end up not getting your desired outcomes, but as mentioned before, as long as you have the right mindset and with the proper strategies in place, you can achieve your desired outcomes.
Plan and implement your strategy
Should you need to undergo renovation of your property that is mortgaged, it is crucial to consider these steps;
Assess your finances
Before embarking on a renovation project, you need to evaluate your finances.
Determine how much you can afford to spend on the renovation without affecting your mortgage payments. You may also consider getting a loan or establish a credit line to finance the renovation.
Research your renovation options
Research the cost of the renovation you want to undertake.
You can get quotes from different contractors and compare prices.
It is also prudent to consider the return on investment and how much the renovation will add to your property’s value.
Consult with your lender
Always make it a point to consult with your lender before planning or undertaking a renovation project.
It would be wise to find out if there are restrictions or conditions that could affect the renovation project.
For instance, your lender may require an appraisal of the property before and after the renovation to assess the property’s value.
Plan and budget
Plan the renovation project carefully and create a budget.
Include all costs, such as labor, materials, permits, and contingency.
It’s crucial to stick to the budget to avoid going overboard on expenses.
Communicate with your contractor
Communication is essential when working with a contractor, so make sure you communicate your needs and expectations clearly.
Discuss the project timeline and any delays that may arise.
Stay on top of your mortgage payments
Renovating your property while still paying off a mortgage can be very stressful and challenging, which in itself, adds another layer to the pressures that you are currently subjected to.
So, make sure you stay on top of your mortgage payments to avoid defaulting on your loan.
Consider setting aside a reserve fund to cover any unexpected expenses that may arise during the renovation.
For example, a Melbourne resident was planning to renovate his mortgaged property. He consulted with his lender, who advised him on the conditions and restrictions for the renovation project.
The homeowner researched different renovation options and found a contractor that offered a competitive price.
He created a budget and stuck to it throughout the project, while he also communicated regularly with his contractor to ensure that the renovation project was progressing as planned.
He stayed on top of his mortgage payments and even set aside a reserve fund to cover any unexpected expenses.
Getting help
In Australia, there are facilities and programs that provide support for homeowners wanting to upgrade or renovate their existing homes.
HomeBuilder Grant
The HomeBuilder Grant is a program launched by the Australian Government in 2020 to support the construction and renovation industry during the COVID-19 pandemic.
The program provides eligible homeowners and first home buyers with a grant to build a new home, renovate or buy an off-the-plan property.
Under the program, a “new home“ is property that has not been previously sold or occupied as a place of residence and where construction commenced on or after 4 June 2020.
It offers a $25,000 grant is available for eligible contracts entered into between 4 June 2020 and 31 December 2020, or a $15,000 grant for eligible contracts entered into between 1 January 2021 and 31 March 2021.
While the eligible contract must be entered into between 4 June 2020 and 31 March 2021 (inclusive), construction need not have commenced before 31 March 2021.
However, construction must have commenced within 18 months of the contract date and not before 4 June 2020.
The HomeBuilder Grant complements the existing First Home Owner Grant that is available in Victoria when buying a new home for the first time.
The Australian Government’s HomeBuilder Grant is bound by the provisions of the National Partnership Agreement between the Victorian and Australian governments.
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme is a program launched by the Australian Government in 2020 to help first-home buyers purchase their first property.
The program provides eligible first-home buyers with a guarantee for up to 15% of the property’s value, allowing them to purchase a property with a lower deposit.
State Government Grants
Some state governments in Australia also provide grants and programs to support homeowners in renovating their existing homes.
For example, the New South Wales Government provides the HomeBuilder Grant, as well as other programs such as the First Home Owner Grant and the Regional Seniors Travel Card.
Energy Efficient Homes Package
The Energy Efficient Homes Package is a program launched by the Australian Government to support homeowners in improving their home’s energy efficiency.
The program provides eligible homeowners with financial incentives to install energy-efficient appliances and make other energy-saving improvements to their home.
Low-Interest Loans
Some state and territory governments in Australia provide low-interest loans to eligible homeowners to support them in upgrading or renovating their existing homes.
For example, the South Australian Government provides the Home Improvement Scheme, which offers low-interest loans of up to $15,000 to eligible homeowners.
Conclusion
Renovating a mortgaged property can be daunting, but with proper planning and execution, it can be a smooth process.
It is crucial to assess your finances, research your renovation options, consult with your lender, plan and budget carefully, communicate with your contractor, and stay on top of your mortgage payments.
By taking the steps mentioned above, you can undergo a renovation project that enhances the value of your home and improves your quality of life, as well as successfully renovate your mortgaged property without breaking the bank.