Funding house extension
Question from Matthew updated on 9th October 2012:
I am looking at extending my two-bedroom house into a four-bedroom, two-bathroom and two living area place. My main issue is how to go about funding this. Am I able to increase my mortage to pay for the extensions or do I get a second mortgage? We have some savings however not enough to cover the costs of the extension. The house had a value of $369,000 when we purchased and we have just under $200,000 left to pay. Any thoughts on the best approach?
Our expert Kris Pedersen responded:
It depends on the cost of what you are doing. If you are going to spend more than $100,000 it is likely that you will need to go for a construction loan where a builder provides a fixed price contract and you get an "As is" and a "On completion" valuation and then the bank provides progress payments until the build is complete. If you are spending under this figure you may be able to get away with just getting a revolving credit facility against the current value of the property and drawing down on this as things progress. Note that if you use this option you want to be confident in your ability to project manage the build. If you are not you are best to either hire a project manager or to go for the fixed price build option. Keep away from second mortgages as they are expensive and not necessary in your position. There are also a few variants in regards to labour only contracts and other options which are worth looking at to make sure you get the best finance product for what you are after.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz