Home to Choose the Right Home Improvement Loan

Many New Zealanders spend their weekends working on home improvement projects. Whether it’s a new deck, an update to the kitchen or just a fresh coat of paint, there’s something uniquely satisfying about undertaking work that makes your home that little bit nicer to live in.

But what can you do if you need finance to help get the job done?

That’s where a home improvement loan can come in handy.

Many people opt to borrow money to complete their projects, which can help to get them completed more quickly or to a higher standard than they might be able to afford if they were paying upfront.

What sort of loans can you take for home improvement?

There are a few ways you can borrow money to fund home improvement projects.

You might use these loans to help with the cost of renovations, repairs or upgrades to your home.

Some of the most common loans used for this purpose are personal loans and home equity loans.

What’s the difference between a personal loan and a home equity loan?

If you’re trying to decide on the right option for you, there are a few things to consider.

A personal loan is a loan you take out in your own name or with someone else as a co-borrower. It can be secured or unsecured. If it’s secured, it means the lender has taken some collateral that it can sell if you do not repay the loan.

A home equity loan is a loan that lets you borrow against the equity in your home, and is secured against the property. The loan is usually in the name of the owners of the property, which could be an individual, two or more co-borrowers or another entity such as a trust.

Interest rates

If you extend your home loan or take out an additional loan against the equity in your home, you may be able to access lower interest rates than you could if you opted for an unsecured personal loan. That’s because the lender has more security that the loan will be repaid.

Loan terms and repayment periods

Sometimes, if you add on to an existing home loan, you have the option of spreading what you borrow over the remaining term of the loan. This can mean the repayments are small, but if they are over a long period of time, you can end up paying more in interest overall than you would with a shorter-term loan, even if it has a higher interest rate.

When you’re considering your options, it’s a good idea to think about the total cost of the borrowing.

Loan amounts and borrowing limits

There may be limits on how much you can borrow against the equity in your home via a main bank. Because of the Reserve Bank loan-to-value rules, you may find it more difficult to borrow more than 80 percent of the value of your home. Banks are also bound by debt-to-income restrictions, which take into account all your borrowings. A personal loan generally does not have the same restrictions, but you will need to be comfortable that you are not taking out a bigger loan than you can afford to repay. Lenders will have checks for this, too, and will need to see demonstrated affordability for the proposed loan.

You’ll need to weigh up the advantages of each option to determine the right path forward for you. We can help you look at your personal loan options.

Assessing your financial situation

Before you apply for any loan, it’s a good idea to have a clear picture of your financial situation.

Here are a few things to think about.

Check your finances

Now might be a good idea to ask for a copy of your credit report. Lenders will usually refer to this to check how creditworthy you might be. Take the opportunity now to make sure there’s nothing on the report that shouldn’t be there.

Work out your income and expenses. How much do you have coming in each month, and what goes out? Having a clear picture of this will help you to determine what you can comfortably afford to service in repayments.

Consider your debt-to-income ratio

Banks are required to limit most of their home loan lending to owner-occupier borrowers to six times their household income. That will include your mortgage and any other lending you might have, including things like your student loan. Checking your current ratio might help you get a picture of where you sit on this scale if you’re planning to increase your home loan.

Preparing your loan application

When it comes to applying for a loan, you’ll want to put your best foot forward. The better finance™ team is here to assist you, but there are some things you can do, too.

Gather the required documents

Before you begin, pull together all the documentation you might need. That’s likely to include proof of income, proof of address and copies of your identification.

Chat with us about the loan application process and what you might expect as you work through it.

Complete the application

Once you’ve got the documentation together, we can help you start to compile your application.

If you apply for a loan through better finance™️, the process is conducted online, and you may be able to get an answer as soon as within a day or two or better finance™️ receiving all the required information to submit your application to a suitable lender.

Tips for getting approved

To give yourself the best chance of success when it comes to your application, there are a few things to keep in mind.

Your credit score

If your credit score is good, it’s generally easier to get a loan. You may be able to take steps to improve your credit score, such as ensuring you make all your payments, including your phone and power bills, on time. If your score is not good, we can talk to you about what options you may still have.

Stable income

It helps if you have proof of ongoing, stable income. Sometimes that means, if you’ve changed jobs recently, it’s worth waiting until you have a few months proof of income from your current role before you apply.

Proper documentation

Getting the required paperwork together at the outset can make the whole process a lot smoother. We can help you work out what you may need.

Managing your renovation loan

Once you’ve got your loan in place, it will be important to manage it so that it continues to work well for you.

Repayments

Set your repayments to come out the day after your payday so you know you’ll have money in your account to cover them. Sometimes, there may be options to pay off your loan more quickly if your income increases or you have access to a lump sum.

Take action if you encounter trouble

If your circumstances change at any stage and you have trouble repaying your loan, get in touch with the better finance™️ team as soon as possible. We can help you talk to your lender to work out a plan.

Looking ahead…

A home renovation loan may be the tool you need to get your projects completed.

There are a number of options available, but the better finance™️ team is here to help you understand what’s on offer and what could be a suitable fit for you. Get in touch with us today, and our expert team will be happy to assist.