5 Tips for financing a renovation
Do you want to renovate your home or have it renovated? A good idea, because a renovation will not only increase the value of your home, you will also experience additional enjoyment from your new kitchen, extension, dormer window or bathroom. Making the home more sustainable also yields a lot, both in increasing the home value and in the direct reduction of your electricity costs.
In this article, we give you valuable tips for a successful renovation and the financing thereof.
Half a renovation is a good start
Before you start renovating, it is advisable to use this handy checklist:
- What is your budget? When determining your budget, also provide a generous amount for unforeseen costs.
- Do you need permits? Request this on time.
- Request a quote from more than one contractor. Please note that not only the price is important, but also the references of previous customers.
- Negotiate. About the price, costs for additional work, materials, the finishing level, and the delivery conditions.
- Make sure you have a good renovation plan with as many details as possible. This way all parties know exactly what your wishes are.
- Check with your mortgage provider whether you are eligible for a lower risk premium on your mortgage if your home has increased in value after the renovation.
- To be sure, take out legal assistance insurance before you start renovating. Something can always go wrong during the renovation and no one wants to end up in years of a tug-of-war about costs.
What does a renovation cost?
The costs depend on a number of factors. Among other things, what you want to renovate, the quality of the materials and how much you do or purchase yourself plays a role. If we assume the average renovation costs including labor and material, we will arrive at approximately the following:
- Bathroom | toilet: 8000 USD 2000 USD
- Heat pump: 5000 – 25,000 USD
- Solar panels: 4000 – 10,000 USD
- Kitchen: 15,000 USD
- Attic dormer window: 11,000 USD
- Extension: 23,000 USD
Depending on the costs and your personal (financial) situation, there are 5 good options for financing the costs. All tips at a glance:
1. It’s all in the family: a gift
Many parents donate or lend their children money to be able to finance a renovation. A great option, because parents can donate more than a ton (one-off) tax-free to a child. An annual donation of 5,428 USD is also common. Everyone can donate tax-free, provided that two conditions are met:
- The recipient is between 18 and 40 years old.
- The donated amount is exclusively used for the renovation or purchase of a home.
Disadvantage: a donation can cause crooked faces within the family.
2. Do It Yourself: save yourself for the renovation
Saving yields almost no interest anymore. So anyone who has a nice amount in the savings account can just as well use it to finance a renovation. People who plan an energy-saving renovation can even immediately start rebuilding savings after the renovation. After all, the monthly costs of the home decrease due to insulation or solar panels, so there is money left over to save.
Disadvantage: the savings that were put into the renovation remain (literally) in the stones. So always keep a savings buffer behind for unforeseen expenses.
3. Sustainability loan from mortgage provider or government
Normally people are not allowed to borrow more than the value of their house (100%). However, if you take out a mortgage and want to apply energy-saving measures in the home, the mortgage may be extended to 106% of the home value. The idea behind this is that after making the home more sustainable, energy costs fall and with it the monthly costs.
Disadvantage: such a loan is not guaranteed and you have to provide a lot of evidence for it. Moreover, this arrangement only applies interesting to new mortgages.
A sustainability loan through the municipality is intended for people who are planning a renovation with the aim of making it sustainable, for example through solar panels. Such a loan has favorable conditions (low-interest rates, penalty-free repayments).
Disadvantage: the conditions for eligibility vary per municipality and it can take a long time before you receive a definitive answer.
4. Financing via surplus-value
Does your current home now have surplus value? You can often take out a second mortgage to renovate your house. The bank will assess whether the costs of the second mortgage are in proportion to your income and fixed costs.
You can discuss whether you can withdraw an amount within the current mortgage (reimburse the repaid amount). After all, the mortgage lender has your house as collateral and you may have a higher mortgage registration than the current outstanding mortgage debt. In that case, you can borrow money again without extra notary fees for the renovation.
Disadvantage: you commit yourself for a long time for a higher mortgage. Moreover, with a major renovation, you are often more expensive than with a Personal Loan.
Borrow money: Personal Loan with loan refurbishment sustainability
Is it not possible to borrow within or in addition to your current mortgage? Then a personal loan is a good option. Certainly if you need a relatively small amount for a reasonably short period, a personal loan is cheaper than an (extra) mortgage.
What are the benefits of a personal loan to renovate or make your home more sustainable?
- No notary fees, no consultancy or appraisal fees such as with an additional mortgage.
- Fixed end date, fixed duration, fixed low interest. You repay the loan in a maximum of 10 years.
- Interim repayment in the meantime is always free of penalties.
- The interest on the loan is tax deductible, provided you use the borrowed money to renovate your home.
- We currently offer the cheapest fixed low interest rate in the Netherlands: from 3.9%.
Do you want to know if a Personal Loan is a responsible financing option for your renovation plans? Here you will find all information about Personal Loans and you can request a free quote.