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There is something very special about moving into a newly built home or putting the finishing touches on a major renovation. Maybe it is the look and feel of new paint and fresh flooring, or just knowing you have kicked a worthwhile goal. 

Whatever the motivation, plenty of Australians are rolling up their sleeves, with the value of building approvals jumping 14.7% from December 2023 to January 2024. Meanwhile, on the renovation front, we are not just pimping our pads for looks and lifestyle. Almost half the home renovations carried out in 2023 were designed with a ‘green’ focus to improve energy efficiency, according to Houzz Research. 

The upshot is that planning a new build or renovation can be exciting and rewarding. But long before you kick back and enjoy it, you may need to decide how to pay for it all. And a constriction loan could be the right tool for the job. 

How do construction loans work?

Construction loans work a bit differently from regular home loans. Instead of receiving a lump sum from the lender, which is usually the case with a traditional home loan, a construction loan drop feeds funds in line with various stages of the project. 

If you are building a new home, a lender will typically make progress payments across give main stages:

  1. Laying the slap
  2. Erecting the frame
  3. Reaching lock-up
  4. Fitting out the home, and 
  5. Completion of construction.

This arrangement can offer valuable advantages. 

For starters, paying out smaller sums during the construction period may provide a level of protection for the borrower against a building being paid for work that is not completed. In addition, while the project is underway, the loan interest is only calculated on the funds drawn down, not on the final total value of the loan. 

During the constriction period, you will generally be asked to make interest-only payments. This can be a lot kinder on your budget than principal plus interest payments, especially if you are renting while builders are at work. 

What to watch for with construction loans

Building projects do not last forever, and neither do construction loans. When your home or renovation is complete, your construction loan will typically roll into a regular home loan.  

It can all sound very simple, and usually it is.  However, a key challenge with construction loans is that they are not offered by every lender. 

It is important to speak to us at an early stage. We can help you identify lenders with construction loan options that meet your needs and budget, plus guide you through the application process. Our support can save you time and leave you free to focus on the project. 

If you are looking to build or renovate, talk to us about your funding options and we will aim to help you get the ball rolling on your construction project sooner. 

Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au


Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.

About the Author:   

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.   

Connect with Louisa on Linkedin.   

Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).

Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. 

How to Refinance When Property Prices Are Declining

property prices

You may have heard that property values are dropping, but what does this mean if you are planning on refinancing?

With the rising cost of living and climbing interest rates, you may be looking to refinance your mortgage. Depending on your circumstances, it may be a great time to get a better interest rate on your loan. Not to mention that if you need access to funds for an investment property or renovation, refinancing can allow you to cash out equity in your home to use for other purposes.

According to CoreLogic, 79.5% of house and unit market values are on the decline across Australia, and this can affect refinancing outcomes.

We will walk you through what the effects of a property value drop can mean for refinancers and how you can act now to get ahead of the curve.

The Effects of Property Prices Drop Can Mean for Refinancers

Refinancing and your property’s value

Rising rates have contributed to declining property values in some areas around the country.

For example, according to the latest CoreLogic data, Sydney’s property prices have declined 10% since they peaked in February 2022, and many economists believe they will fall even further.

As a homeowner, a drop in property value can affect your equity. That is because equity is the difference between your property’s (market) value and your mortgage balance. And it is a number that lenders pay attention to when assessing refinancing applications. 

Refinancing before your equity drops may see your refinancing application have a greater chance of success. Most lenders will typically require you to have 20% equity in your home to refinance, which essentially serves as a deposit.

According to this graph, if you have bought a house in Sydney (for example) since June 2011, due to recent property price declines, you soon may no longer have 20% equity in your home. 

If you don’t have 20% equity, you could still refinance by paying lenders mortgage insurance, but that would likely defeat the purpose of refinancing in the first place. And if you fall into negative equity, where your home’s value drops below your mortgage balance, then refinancing most likely won’t be on the cards at all and you will be stuck with the current lender. 

So, if you are interested in refinancing your loan to get a better rate, sooner may be better than later, depending on how your property value is fairing.

Refinancing to cash-out equity

If you are keen to unlock some equity – you are not alone!

According to NAB research, seven in 10 mortgage holders recently cashed out equity while property prices were high and used the money to renovate, invest in property or shares or boost their superannuation. 

How does cashing out equity work?

Let’s say you bought an $800,000 house five years ago that is now worth $1 million. And let’s say you took out a $600,000 loan for that house, which you have managed to pay down to $500,000. By refinancing that $500,000 loan into an $800.000 loan (banks will typically let you borrow up to 80% of a property’s market value), you can unlock $300,000 in equity. 

However, if you delay a year or so, and national property prices decline 10% over this period, your house might only be valued at $900,000. That would mean if you wanted to unlock 80% of your property’s market value, you could only refinance your $500,000 mortgage into a $720,000 loan and therefore only unlock $220,000 in equity. 

Frequently Asked Questions

How do declining property prices affect refinancing?

Declining property prices can affect your home’s equity, which is crucial for refinancing. Lower equity may reduce your chances of successfully refinancing your mortgage. 

What is equity and why is it important for refinancing?

Equity is the difference between your property’s market value and your mortgage balance. Lenders typically require you to have at least 20% equity in your home to refinance.

Can I still refinance if I don’t have 20% equity?

Yes, but you may have to pay lenders mortgage insurance, which could offset the benefits of refinancing. 

What is cashing out equity?

Cashing out equity involves refinancing your existing mortgage into a larger loan and taking the difference in cash, which can be used for purposes like renovation or investment. 

How does a drop in property prices affect my ability to cash out equity?

A drop in property prices can reduce the amount of equity you can cash out. For example, if your home’s value decreases by 10%, you may be able to unlock less equity than before. 

What is negative equity and how does it affect refinancing?

Negative equity occurs when your home’s value drops below your mortgage balance. In such cases, refinancing is usually not an option.

How can Zippy Financial help me with refinancing in a declining property market?

Zippy Financial offers expert advice on navigating the complexities of refinancing, especially when property values are declining. They can help you assess your options and find the most suitable financial solutions.

Get in touch

If you have been considering refinancing lately, contact us to find out more. Whether you are looking to get a better rate or unlock equity in your home, we can help you!

Phone: 1300 855 022

Email: clientservices@zippyfinancial.com.au

Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business. 

About the Author:   

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.   

Connect with Louisa on Linkedin.   

Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).  

Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. 

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Renovate or Invest? How 7-In-10 Australians Are Using Their Equity

renovate or invest

Seven in 10 homeowners have recently used their equity in their home to renovate, invest in property or shares, or boost their superannuation. Have you thought about how you could take advantage of last year’s property price spike?

Have you heard that property prices spoked 23.7% in 2021? That is quite the growth spurt! So, how do you take advantage of that growth without (or before) selling your home? Well, one way to do so is to cash out equity while property prices are high.

According to NAB research, three in 10 mortgage holders have recently done just that and have used the money to give their home a facelift by renovating. Other popular options include using unlocked equity to buy an investment property (16%), invest in shares (12%) and boost super balances (8%).

How Does ‘Cashing Out Equity’ Work?

Let’s say you bought an $800,000 house three years ago, that due to last year’s property price surge, is now worth $1 million. And let’s also say you took out a $600,00 loan for that house, which you have managed to pay down to $500,000. By refinancing that $500,000 loan into a $700,000 loan (70% of your property’s new market value), you can unlock $200,000 in equity to help fund a deposit for your renovations or to buy an investment property.

It is worth noting that banks will typically let you borrow up to 80% of a property’s market value. So, if you upped the ante and refinanced to an $800,000 loan, you would be able to unlock $300,000 in equity.

 Want to Find Out More About Unlocking the Equity in Your Home?

We would be more than happy to sit down with you and help you work out how much equity you can unlock. And if you decide to proceed, the good news is part of the process can include refinancing your home loan.

Why is that good news? Well, just because interest rates are going up, does not mean you can’t scope out a better deal on your mortgage. Competition amongst lenders remains fierce, particularly if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.

If you would like to explore your options when it comes to unlocking the equity potential in your home, get in touch as we would love to help you crunch the numbers.

Frequently Asked Questions

What is ‘Cashing Out Equity’ and How Does It Work?

Cashing out equity means refinancing your existing home loan to unlock the increased value of your property. For example, if your home’s value has risen from $800,000 to $1 million, and you’ve paid down your $600,000 loan to $500,000, you can refinance to a $700,000 loan to unlock $200,000 in equity.

What Are the Popular Ways Australians Are Using Their Home Equity?

According to NAB research cited, 30% of mortgage holders have used their home equity for renovations. Other popular uses include buying an investment property (16%), investing in shares (12%), and boosting superannuation balances (8%).

How Much Can I Borrow Against My Home’s Value?

Banks will typically let you borrow up to 80% of a property’s market value. So, if your home’s value has increased to $1 million, you could potentially refinance to an $800,000 loan, unlocking $300,000 in equity.

Can I Get a Better Mortgage Deal While Refinancing?

Yes, even though interest rates are going up, competition among lenders remains fierce. If you have a decent amount of equity and a strong track record of meeting your mortgage repayments, you may be able to find a better deal on your mortgage.

How Can I Find Out How Much Equity I Can Unlock?

Financial experts can help you work out how much equity you can unlock. They can also assist you in the refinancing process, which can include finding a better mortgage deal.

What Are the Risks Involved in Cashing Out Equity?

It’s important to consider that refinancing to unlock equity increases your loan amount, which could lead to higher monthly repayments. Always consult a financial advisor before making such decisions.

Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business. 

About the Author:   

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.   

Connect with Louisa on Linkedin.   

Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).    

Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.  r-less normal distribution of letters. making it look like readable English.

RELATED ARTICLES 

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How does being able to afford an entire Spanish village, fly your whole family there and back first class AND have enough money left over for renovations sound?

Well, Zippy The Wonder Dog has found just that this week!!

What can a Million Dollars Buy Today? | Zippy Financial

This listing was highlighted this week in an article by Domain.  The village is presently up for sale for the price of just $371,000 and is described as overlooking the ocean, includes four houses, several grain storage facilities and multiple barns, all located in 3000 square metres of picturesque Spanish countryside.  

Sound too good to be true?  Sadly it is.  The village is actually abandoned – A result of Spain’s recent economic crisis which caused a mass exodus!

And while you could afford to purchase the property for such a significant amount less than the average median house price in Sydney, it’s likely, you’d need the remainder of your $1,000,000 for renovations.  But remember to keep a little back for the airfare 😉

Airfare | Zippy Financial

Read more here.

Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.