Do you need to borrow money to rebuild, rebuild or renovate your home? A renovation loan can pay off in the long run because it increases the value of the home. There are several ways to borrow for renovation. We figure out the options!
Raise your mortgage
An alternative to financing the construction is to borrow the value of your existing home. Since you are mortgaging the home as collateral for a mortgage, the interest rate is generally lower for a mortgage, compared to a private loan. However, you need to take into account how much you need to repay. If you currently have a low mortgage and borrow the value of the home you already live in, you may get more than 70 percent of the loan in terms of the home’s total valuation. If you borrow money for more than 70 percent of that value, you will need to repay two percent a year.
If you instead optimize the loan so that you end up with less than 70 percent in mortgage, you only need to repay one percent per year. All loans below 50 percent, on the other hand, are completely amortization-free. What applies to repayments is governed by the government’s repayment requirement that was introduced in 2018. Before you decide how to lend to your renovation – make a calculation where you clearly see what an extended mortgage will cost you each month.
Take out a private loan
If for some reason you do not want to raise your existing mortgage, you can take out a private loan to finance renovations. You do not have to mortgage the housing and instead you get a loan that is completely separate from your other mortgage costs. Since you do not pledge anything to take out a private loan, you cannot also fix the interest rate. Instead, the interest rate is governed by the Riksbank’s national policy rate, the so-called repo rate. The banks also set interest rates based on your ability to pay and creditworthiness, which means that all loan terms are individual.
The total cost of a private loan is based on the loan amount and repayment period, but also on the effective interest rate. By this is meant the nominal interest rate plus all additional fees for planning and notification. Therefore, it is always a good idea to carefully review all fees before you take out a loan, as the terms may differ considerably between different actors. Father Brown’s loan calculation is a valuable tool for calculating the cost of a home loan. The digital service allows you to purchase bank loans directly from your computer, mobile or tablet.
Another way to borrow for renovation is to sign a building credit. Then you get a credit granted by your bank or lender, which is redeemed when the construction itself is completed. The advantage of the credit is that it can be difficult to calculate the total construction amount before you are completely finished, and this way you do not have to take into account unexpected costs. The credit is simply not paid until the entire construction is completed and you know what the total amount landed on.
The main difference between building credit from a mortgage is that you need a home as collateral for a mortgage, you do not need a credit. Those who want to build a brand new home cannot normally pledge this home until the construction is complete. However, it is possible to do with a building credit. When the construction work is completed, a valuation of the home is made and the costs incurred through your building credit are paid with this type of mortgage. Don’t forget that the interest on a building credit is often negotiable, just like any other loan.
A long-term investment
Renovating the home often adds value and can be a smart investment for the future. Even if it costs you a lot to change the kitchen or build a new bathroom, it makes the home a better standard and thus a better value in the market. Once you have completely renovated this time, you can always make a valuation with a real estate agent. The valuation can be used as a basis for negotiating the mortgage interest rate with your bank. However, you may only make such an assessment every five years, so think about and plan at what times it is best to make an assessment. If you are planning to renovate again in a year or two, it may be wise to wait to do a market valuation until you feel more ready
Whichever loan option you choose, remember to always compare the banks’ various interest rates and loan terms to find what suits you and your finances best. Here you can make a quick and easy loan check that gives you the best chance of finding the best price on your loan.