Should you upsize or renovate your home?

To upsize or renovate, that is the question a growing number of Australian homeowners are facing at the moment.

Thanks to the pandemic-related restrictions of the last 18 months, many property owners may have found themselves sitting on a nest egg with nothing to spend it on. One economist recently reported that Australian households may be sitting on $230 billion in accumulated savings by the end of the year. And as the time we spend at home increases, it’s not uncommon to consider ways you can renovate the family home.

On the other hand, with property prices sky high across the nation, homeowners may be considering cashing in on current market values and selling the family home to upsize. Further, with more employers shifting to allow permanent work-from-home conditions, homebuyers can look outside of areas in proximity to major CBDs.

The latest Australian Bureau of Statistics (ABS) figures for the March 2021 quarter show that since the start of the pandemic, a net 24,000 people left Sydney for other parts of New South Wales. Melbourne also lost 22,651 residents to other parts of Victoria. Meanwhile, Brisbane gained 16,322 residents, with almost half coming from Sydney and Melbourne.

So, if your family is growing or you feel you’ve outgrown your current space, you may be tossing up between renovating and upsizing.

Renovation nation – what to consider if you make home improvements

Your household has outgrown its current space – but it’s still your home. Which means you may be considering renovating and making major improvements as opposed to upsizing. If you’d prefer to change your home instead of change homes, here are some of the key factors you want to consider.

How will you afford your renovation?

If you’re contemplating a new coat of paint and some aesthetic changes, then the savings you may have built up over COVID may certainly cover these costs. But if you’re considering serious structural work, such as adding a granny flat or an additional storey to the home, you may need to consider your options.

Firstly, you may want to consider drawing down on any extra repayments you’ve made into your redraw facility. If your home loan lender does not offer this feature, then you may need to consider refinancing to access equity in your home.

If you’ve been repaying your mortgage for some time and have built up some equity, by refinancing and increasing your loan amount to release these funds, you may be able to cover the cost of your renovation goals.

Reduce Home Loans offers some of the most competitive refinancing home loan rates on the market. With interest rates as low as 1.77%, you’ll not only be able to access your equity by refinancing, but you may be able to reduce your mortgage repayments in the process.

Further, you may want to consider taking out a construction loan. This type of loan is different to a mortgage, as you will make repayments across the different stages of building and renovating your home.

Is this your forever home?

A more emotional question than a logical one, but it’s worth being honest about whether your current home is one that you and your household want to live in for a number of years.

If you’ve already settled into the neighbourhood and put down roots, such as committing to local schools or having friends and family established nearby, this can make the cost of renovating the property into your dream home much more worthwhile compared to starting fresh somewhere new.

However, if you have a growing family in a small apartment, for example, and are dreaming of a backyard and more elbow room in a larger home, then you’re better off considering upsizing. No amount of renovation can assist you when it comes to significantly increasing the square footage of the property.

Moving on up – what to consider if you upsize

Despite the many television shows dedicated to the topic, home renovation isn’t everyone’s cup of tea. If your household would prefer to simply upgrade and buy a bigger and better home, here are some of the key factors you’ll want to consider.

Will you keep the home?

A significant question that homeowners will need to carefully consider is whether to keep the existing property after purchasing the new, upsized home.

If you plan on renting out the first home as an investment property and are still repaying a mortgage, you’ll need to speak with your home loan provider about switching your loan from owner-occupier to investor. Investor home loans on average may come with higher interest rates than owner-occupiers, which can impact your household budget.

Plus, you’ll also need to research rental yield for similar properties in your area and calculate your potential rental payments as, ideally, you’ll want these to cover your ongoing mortgage repayments. If not, you may find yourself paying for the ongoing costs of two mortgages.

If you plan on selling your current property you may need to consider taking out bridging finance. A bridging loan may help cover the financial gap between purchasing your new property before your old property sells. Bridging loans generally come with higher interest rates on average and will need to be repaid over a short term – typically within six months of selling the original property.

The cost of upsizing

If you’re currently paying off your home loan you should keep in mind that there can be associated costs with moving and starting a new mortgage. This can include exit fees if you’re repaying a fixed rate home loan, stamp duty costs (if applicable), as well as convincing, valuation and agent fees.

You’ll also need to factor in the cost of moving into your budget, particularly if you’re considering a regional or interstate move, as well as insurance and even new furniture or appliances.

If you’re hoping to stay in your current suburb or council area, you’ll also need to keep an eye on property values. While a hot housing market can mean good news in terms of return on investment for the sale of your existing property, you may also be buying into a competitive market with higher dwelling values. This can be challenging for budgeting, especially if you plan on using profit from the sale of the first home to help purchase the new home and pay for new furniture and appliances.

This is where doing your research and even speaking to a real estate agent familiar with the area can help you better prepare for the realistic cost of selling and buying a new house.

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Ultimately, choosing between upsizing or renovating is a big decision and it comes down to the cost of both projects versus your overall goals and financial situation.

If you’re unsure about how to gauge the cost of renovating or upsizing, it may be worth getting a few home-renovation quotes and seeking out a valuation on your existing property. You may want to consider speaking to a real estate agent or broker for more detailed advice – particularly about the value of your property and current market conditions.

And, if you’re still not sure how you may be able to afford the cost of renovation or upsizing, consider reaching out to the team at Reduce on 1300 REDUCE (722 823) for more information on construction loans, as well as refinancing to access equity in your property.

Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.