The best way to fund your home renovation

Published on 26th July, 2023 at 12:21 pm

Every time you walk into your kitchen, you want to rip out the hideous cupboards. Maybe your lounge needs new flooring, or you want to knock down a wall to create an open-plan space. Whatever renovations you have in mind, it’s important to plan financially for them – before you find yourself living in a construction site with no end in sight… Here’s how to plan your dream renovation and what your options are for funding it.

Reading time: 3 minutes 

In this article you’ll learn:

• What funding options you can consider for home renovations.
• What to look out for when planning renovations.
• How the building value calculator can help you correctly insure your dream.

What funding can you consider?

“The most common funding for renovations is to take a re-advance on your home loan,” says Ayanda Ndimande, business development manager at Sanlam Retail Credit. “It’s probably also the most affordable way to get access to funding, providing you already have equity in your bond. You could apply for a personal loan, which has the advantage of having a fixed interest rate for the entire term of your loan, compared to a home loan that will fluctuate with interest rate hikes.”

There is also, of course, the option to get an estimate of the expected cost of the renovation work required from a reputable contractor, and then saving monthly until you reach this savings goal.

Consider this before borrowing money for renovations

Renovating your home can be seen as ‘good debt’, says Ndimande, since you are adding value to an asset. However, as with any additional credit you apply for, you have to understand the impact on your monthly expenses, she cautions.

“That new bathroom or kitchen can become a burden if the interest rate fluctuates to the higher end, putting you in a weaker cash-flow position to meet your other obligations. Always do your research and recalculate your budget, building in a bit of fat for those unplanned surprises,” she says.

It’s always a good idea to check whether your property is insured for the correct value – after all, renovations should increase the value. You can use this building value calculator to help you out.

Funding renovations and your credit score

You may understandably feel nervous about taking on debt, as it could impact your credit score, but Ndimande says that if you pay your monthly instalments, your credit score should remain healthy.

“As long as you don’t miss payments or increase your debt-to-income ratio (it should never be more than 30%), credit providers will consider you as a good risk for further credit applications, should you need it.”

You can check your credit score, for free, with Sanlam Credit Solutions.

Renovation surprises to brace for

“There’s always something surprising that comes up during renovations, whether it’s finding the original stairs below the existing ones, or a window bricked over in a wall,” says Ruben Rossouw, partner at Block Plan Architecture and Interior Design in Cape Town. “You never know what you’re working with, which is why there should always be money in your budget for unexpected events.”

Renovations also usually take longer than you plan, he cautions. “What if the delivery of your tiles is delayed and you can’t move back in on the scheduled date? Do you have money in your budget for alternative accommodation? What if the geyser you were planning on reusing doesn’t fit in the new design?” Rossouw suggests always using professional and trustworthy contractors and designers, which lowers the risk of unexpected expenses and delays.

A financial planner can help you choose the risk investment vehicle for saving up for your renovation, and risk cover for insuring the completed end result. Book an appointment with a Sanlam financial planner today.