Make over your money, before you make over your home

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So, you have big plans - a spacious new kitchen, a luxe new bathroom, a stylish new bedroom, or maybe all of the above. The next step is figuring out how on earth to pay for it all.

Here’s a quick guide from the team at Harmoney, on giving your finances a facelift before you start doing the same to your home.

 

Plan ahead

If you’re able to, it’s a good idea to take a close look at the state of your finances well before you’re going to be shelling out for your renovation, particularly if you’re thinking of applying for a loan.

Not only will you be clear about how much you can afford to spend but also whether you have any hiccups in your credit history which need fixing and can take time.

What that means is the first step in your financial makeover should be to check your credit score, and your credit file. Are there defaults or unpaid bills to be sorted out? Is there anything in your file you think may be an error?

It’s a good idea to check with all three of NZ’s credit bureaux as they may hold different information about you. If you do think there’s been an error, notify the relevant credit bureau.

 

Embrace the “b” word

Budgets have an image problem. A lot of people probably associate them with a list of rules that stop you from doing anything fun. But that doesn’t have to be true. A successful budget is one that helps you reach your financial goals – such as saving for a house renovation or paying down debt – while still enjoying life. 

Three helpful hacks for sticking to your budget are:

Keep your goal top of mind. Try things like keeping pictures of your dream renovation where you can readily see them or name your savings account after your renovation project.

Allow room in your budget for things you love. Having a budget doesn’t mean never leaving the house, it means planning ahead and keeping your goal in sight. You can still allocate funds for fun stuff like occasional dinners out, hobbies and entertainment. It may help to treat the fun stuff as a reward for keeping to the rest of your budget.

Find a format that engages you. It might be an app, it might be a stylish planner, it might be something you design yourself. Are you competitive? Are you creative? Find a way to record and track your financial plan that makes it fun and sparks your interest.

Balance is key to creating a budget you’ll stick to. Be clear-eyed about what you want to achieve, and where you can make savings to achieve it, without sacrificing everything you love. Once you start looking at what you spend you may find there’s some easy wins that save you a good amount each month. For example, do you have multiple entertainment subscriptions? A rarely used gym membership that could be suspended or cancelled? Small amounts can add up quickly towards meeting your goals.

 

Loans vs credit card vs mortgage

If you’re in the market for any kind of credit do as much research as you can before actually applying. Each time you apply for credit, that creditor will perform a credit check on you, and that will likely have an impact on your credit score, whether you accept the credit option or not. 

If creditors view your credit history and see you’ve made multiple credit applications at once it can be viewed as a signal of financial strife and they may be more reluctant to lend to you at a good interest rate.

Other than saving, options for financing your home renovation can include extending your mortgage, using credit cards, or applying for a personal loan (either secured or unsecured).

Researching the best option for you involves a little bit of maths homework, comparing not just interest rates, but how much total interest you will pay over the life of your loan.

Rolling your home renovation costs into your mortgage has the advantage of leaving you with only one repayment to think about which appeals to a lot of people. But it’s also worth working out how much extra interest you’ll pay if the loan term is much longer. If you do opt to roll your loan into your mortgage you might want to up your repayments, so you pay off the additional amount of your home loan faster and get the benefit from a lower rate. Sorted.org.nz has useful calculators to help you compare different options.

Credit cards can be an option to cover your home renovations, but be mindful of often high interest rates, so it’s probably a good idea to work out a plan for paying them off as quickly as possible before you take out the credit. Credit cards can be a useful option to cover unexpected, or emergency renovation costs while you figure out a cheaper way to cover the debt.

A personal loan is an option.  You can apply for a personal loan before you start your renovations and this will give you a clear idea of what you can afford. A loan will often also have an interest rate fixed for the term of the loan, meaning no unexpected interest rate increases that alter the amount you have to repay.

Some personal loan products, such as those offered by Harmoney, also have a rate-for-risk structure, which means you will be offered an interest rate and loan amount personalised to your own circumstances rather than “one size fits all”. 

Personal loans can be secured, which usually means a lower interest rate but an asset is required to secure the loan, or unsecured, where no asset is required but rates may be higher.

If you’re not sure which is the best finance option for your circumstances you might want to have a chat to an independent financial adviser.

Happy renovating!

 

Contact Refresh

If you have a renovation project in mind that you would like to discuss, contact Refresh today!

 

Harmoney offers personal loans with interest rates tailored to your personal circumstances and no break fees. Apply online in minutes.

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