Q: We were planning a pretty ambitious renovation this year, adding a master bedroom plus en suite and an outside sleepout/studio which would have cost around $150,000. But interest rate rises are making us nervous - we were going to put the cost of the renovation into a
revolving credit account. Our mortgage is $300,000 and the house should be worth around $800,000 when we are done. Do you have any suggestions? Other friends are doing their renovations in phases rather than all in one go. Is that what we should do too?
A: Geoff Bawden, chairman of the New Zealand Mortgage Brokers Association replies:
While the decision about whether or not to go ahead is personal, the key issue you raise is that relating to affordability. The interest cost on another $150,000 at today's rates is around $1160 per month, and if you feel comfortable with that there are things you can do to protect yourself from further cost increases in the short term.
Firstly, consider how long it might take to complete the renovations. If they can be completed in the relatively short term you may be better to draw the full loan amount in one lump sum and fix the interest rate rather than take revolving credit. On the other hand a revolving credit facility may be suitable if the project is going to take some time to complete. Seek advice from an NZMBA Accredited broker about the options that might best suit you.
Completing the renovations in stages is another option but I see little value in doing that. If the project is affordable for you then the most cost effective option will almost certainly be to undertake and complete the whole project now. Deferring parts of the project will just give you cause for worry and you are probably under enough stress already.
If you are comfortable the affordability of your mortgage then the rest will ultimately fall into place.
www.nzmba.co.nz
