Renovations can be expensive – especially as so many homeowners wish to revamp their architecture and designs and improve their house prices. In a study by Houzz conducted between February and March 2020, the median spend for renovations in Australia was about $20,000 – with the top 10% of homeowners splashing out an average of $150,000. 48% of people surveyed about what they were doing in their homes were in fact, renovating. 53% said they were decorating or furnishing their homes.

But how are people paying for these big renovations, especially now with the end of the Covid-19 government Homebuilder programme on April 14?

Most people are using their own savings – should you?

According to the survey, 80% of people are dipping into their own savings to fund their renovation. 20% said they’re using their credit card, while 14% said they’re redrawing on equity or using cash from a home loan refinance.

Using your own money is fine if you have it – and you have some left over to take care of budget overruns (more on that later) and emergencies. But dipping into your home equity or using a credit card can run up significant amounts of interest, as Managing Director of Savvy Bill Tsouvalas explains.

“Credit cards are revolving types of credit and will keep piling on interest beyond the interest-free period. Drawing on your mortgage is also a problem. If you aren’t prepared to up your repayments significantly, you’ll be adding a significant amount of time to your loan which means potentially much more interest over the long term.”

A solution is to refinance with a fixed rate home loan. If you haven’t looked at your mortgage in the last couple of years, now is the time. If you haven’t looked at your home loan in at least a couple of years, now is the time. In 2021, interest rates are at record lows. You can include home renovations as part of the principal, while locking in a lower interest rate for the remainder of the mortgage repayment period.

How to budget, plan, and make sure you don’t pay too much

Luckily 57% of respondents said that their renovation came in within budget (plus or minus 5%) a quarter said they blew the budget and 14% said that they went overbudget by 25% or more! This was due to services and products being more expensive than they expected or to added complexities.

The conventional wisdom in renovating is to spend about spend 10% of your home’s current value; banking on what your home might fetch after the renovation is wishful thinking at best. If your home is newer (built in the past 15 years) partial, instead of total, renovations may be the key. Swapping out tiles in the bathroom or modernising a vanity is a far sight cheaper than a total renovation that strips out absolutely everything and requires additional tradespeople for example.

Kitchens can be renovated by maximising the space, you already have and adding new styles of cabinets or benchtops. Most of us want the kitchen done (23%) so it’s worth looking into. The amount spent on a kitchen reno can range from the reasonable to the eyewatering. The quality of your kitchen does significantly affect valuation however, so the undertaking can strike a balance between investment nous and liveability. 

Things take time, and that’s OK

The time it takes to plan a kitchen on average is 5 months – and it can take almost 11 months to see it to completion. Time is a factor in renovations and adding more time to planning and construction can see cost overruns and externalities such as eating out.

However, you can add value to your home with cosmetic renovations such as replacing incandescent (and power hungry) lights with LEDs, painting certain rooms, adding shelves and fixtures, or replacing curtains.

“It costs a fraction of knocking down a wall and gives your home a new lease on life. Best of all, you won’t even come close to that magic ten percent value rule,” Tsouvalas says.