Dream home in dan­ger

Money Magazine Australia - - ASK PAUL -

Q My hus­band and I bought our first owner-oc­cu­pied home 16 months ago in our dream lo­ca­tion. It’s a life­style prop­erty on two hectares in a re­gional Vic­to­rian town. Although it’s our first home we plan on stay­ing in the prop­erty long term and want to ren­o­vate the kitchen and bath­rooms to make it into our dream home as well.

The ren­o­va­tions would be to our own taste as it is our owner-oc­cu­pied prop­erty and we have had no re­gard for the other houses in the area, as we have no plans to sell or use it as an in­vest­ment prop­erty.

We put all our sav­ings into the de­posit and got a loan at an 80% loan-to-value ra­tio (LVR).

Our plan was to re­fi­nance and ac­cess equity to com­plete the ren­o­va­tions. How­ever, a desk­top val­u­a­tion was re­cently ob­tained from one of the ma­jor banks and it came in $25,000 lower than what we paid for the prop­erty. This could be due to one of the ma­jor power sta­tions nearby clos­ing down and there be­ing lim­ited com­pa­ra­ble sales in the past three months for prop­er­ties on acreage. We are now cur­rently sit­ting at about 81% LVR based on the desk­top val­u­a­tion.

Our ques­tion is, should we ob­tain a per­sonal loan or other un­se­cured fi­nance to ren­o­vate and try to re­fi­nance again af­ter the ren­o­va­tions are com­pleted? Or should we wait and build up equity by mak­ing ex­tra re­pay­ments to the loan? Or do you know of any other op­tions that may be avail­able for this sce­nario?

Desk­top val­u­a­tions, in par­tic­u­lar in re­gional ar­eas with acreage, are more guess­work than sci­ence. They also tend to be su­per con­ser­va­tive.

So I think your first step is to seek a sec­ond opin­ion. I’d be talk­ing to a lo­cal lender such as a build­ing so­ci­ety or credit union. If that con­firms the re­cent val­u­a­tion, then I agree you have to look to other op­tions.

The big­gest is­sue for me is some­thing you did not men­tion: your in­comes. I do get your point that this is a life­time prop­erty for you, so a new kitchen and bath­rooms will not only add value but will bring last­ing plea­sure. If you have rel­a­tively high in­comes a lender will be more in­clined to make a loan ex­ten­sion work for you, or at least a very low-cost per­sonal loan.

If, how­ever, money is tight, I re­ally can­not en­cour­age you to take on po­ten­tially high-in­ter­est debt to ren­o­vate. It could put your dream home at risk. If this is the case, I would rec­om­mend that you bide your time and build your sav­ings.

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