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Is it possible to renovate your house and keep up the mortgage repayments?

YES, it’s absolutely possible to do a basic renovation and pay the mortgage. It’s all about planning and patience.

Let’s take the old rule of thumb; that a basic home renovation should cost around 5% of the purchase price. With housing prices in Australia as they are, you’ll need around $40,000.

Just say you took advantage of the current once-in-a-generation low interest rates and decided to save around $8,000 a year while paying your mortgage. Not easy. But if you could do it, or come by the money some other way — an unexpectedly large tax return, forgoing overseas holidays, that kind of thing, to get the renovation money would take you about five years.

Remember, we’re not talking about a complete house overhaul here as that can cost hundreds of thousands. It’s perhaps remodelling two bedrooms into three, or maybe a new kitchen and laundry. That kind of thing.

The biggest question is — can you manage the expense of the renovation while still prioritising your mortgage payment, given we’re so often told that building costs can blow out by up to 50 per cent?

And we are talking about doing it the old fashioned way, finding the money and only renovating once you have the cash yourself — not turning to renovation refinancing or a personal loan.

Sonya Pala is the co-founder of The Decorating School in Sydney, a business that holds workshops around Australia helping people renovate their home while sticking to a budget.

She says managing a renovation alongside a mortgage just takes careful planning. A clear idea of what needs to be done before you begin, some due diligence in getting comparative quotes, and a big picture budget and project schedule means you can manage even a large mortgage alongside a renovation.

“The key is planning and being realistic about what you can afford as well as what parts of the project are priority for you,” Ms Pala says.

“It all comes down to detailing the work needed for the renovation, assessing the true costs of the entire project and then putting together a realistic budget. Always ensure that you are getting regular updates from your builders to keep track of the projected costs and keep a 10-15% contingency in place for unexpected works.”

And a really clear idea of how much money is needed upfront is essential if you’re also outlaying on a mortgage each month — particularly as a first homebuyer, or if you have a mortgage that’s a big chunk of your wage.

“Putting the numbers onto a page will help you work out what items to splurge on and areas in which you can reduce costs. This in turn will help you ascertain how much you can afford to pay every month and therefore how you can manage mortgage payments as well as a renovation,” Ms Pala advises.

“Define what the payment schedule will be. It always helps to get the costs defined and once you have a total estimate, you can work out how it fits in with your budget”.

Don’t be afraid to piecemeal a renovation as and when the funds become available — with careful quoting due diligence, it isn’t actually more expensive, as many people will tell you.

And lastly, your mortgage is the number one priority. So you may have to get creative if the estimated cost is simply out of reach after paying the mortgage each fortnight. “You can either phase the project out so you’re decorating a small area or room at a time, revise your wishlist and reduce costs by amending your plans, or look for more cost effective ideas”.

Original Post: Here

Written by Jo Callan from www.news.com.au dated September 17, 2017

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There’s one thing this expert says you should do before buying a house

IT’S the debt we all like to forget we have, and Australians owe a combined $48 billion.

But while a HECS or HELP balance is the best debt you can have, given that it doesn’t attract interest, ignoring it could harm your finances in less obvious ways.

And you might want to think about paying it off before you saddle yourself with a home loan, Finder money expert Bessie Hassan suggests.

“Even though this is no-interest debt and therefore better value than commercial interest-laden debt, it’s still a good idea to clear it as early as you can and before you look to acquire any further debt, as further debt will be more expensive to pay back and therefore more difficult to clear,” Ms Hassan said.

And, she said, your HECS debt could impact on how much the bank will lend you to buy a house or car, because your income is reduced by the repayments taken out of your wage each week.

“It’s worth considering paying off this HELP debt as soon as possible to rid yourself of the burden of having an incremental chunk of your wage being taken out every year,” she said. “This can make you more attractive to a lender.”

If you are paying the minimum amount off your student debt while you earn the median full time wage of $82,804, you’ll have $5382 taken out of your pay each year. For those who fall into the $95,627 to $101,899 income bracket, the maximum annual repayment is $7642.

An analysis of ATO data by finder.com.au found that the amount of HECS and HELP debt has doubled in size in the five years from 2011 to 2016, rising from 1.6 million Australians owing $22.6 billion to 2.5 million Australians owing a mountain of debt valued at $47.9 billion.

Almost half a million of them owe more than $30,000, accounting for about 46 per cent of all HELP debt.

“This number keeps creeping up, and it could take graduates years to repay,” Ms Hassan said.

Until January this year, those who opted to make extra payments towards their debt were given a 10 per cent discount, but this incentive was abolished by the Turnbull Government.

THE GREAT HOME LOAN CHALLENGE

As young Australians battle to enter the housing market, with rising property prices making the task of saving a deposit ever more challenging, it seems counterintuitive to put extra cash towards paying down a debt that only increases in line with the cost of living, measured by the consumer price index (CPI).

That’s about two per cent a year under current economic conditions; compared to a personal loan, on which the banks will charge about 12 per cent a year in compounding interest, it’s a very good deal.

And, despite calls for reform, your HECS dies with you; when you pass on, your debt is wiped and it is not passed on to your estate.

But, Ms Hassan said, paying it down before you pursue the home ownership dream may still be worth it.

“Once your HELP debt is paid off, you’ll be keeping more in your pocket from what you earn at work — and potentially get a larger tax refund,” she said.

“While this may not seem like much, this could be the shortfall in completing a deposit on a loan.”

The extra cash could make it easier to both save for a deposit, and service a home loan, depending on “your income, the amount of other liabilities you have, and the property purchase price.”

“Making extra voluntary payments can be good if you have no other debts and if you have spare cash to put towards your student debt,” Ms Hassan said.

“On the flip side, if you have other debts, such as a personal loan or credit card, you should work on servicing this debt first as you’ll be charged interest.”

It only becomes compulsory to start paying off HECS or HELPS debt once income exceeds $54,869, a threshold that is adjusted each year.

Australians can make a voluntary repayments on their HECS or HELP debt at any time through their tax returns.

While no interest is charged on the debts, they are indexed on June 1 each year to keep pace with inflation.

 

Original Post: Here

Written by Dana McCauley, from www.news.com.au.