When it comes to substantial structural changes in your property, banks view this as construction finance, regardless of the scale —whether minor alterations or significant extensions. Here are the 5 most important things to consider.
1. Valuation and Assessment:
An evaluation of your property's current and future value is essential. A registered valuer assesses both the current "as is" value and the projected "as if completed" value based on the renovation plans. Banks typically lend up to 80% of the "as if completed" value, ensuring your repayment capacity.
2. Financial Assessment and Serviceability:
It's critical to demonstrate that you can afford the mortgage repayments. Banks evaluate your ability to service the loan before approving any funds. Your income, expenses, and financial stability play a vital role here.
3. Fixed Price Contracts and Documentation:
Banks favor full fixed-price contracts devoid of provisional sums. Builders' risk insurance, comprehensive specifications, a valid building consent, and detailed plans are mandatory documentation.
4. Loan Drawing and Construction:
Once the bank approves, they start disbursing funds based on invoices from the builder. This portion is usually on a floating rate with flexible repayment options—either principal and interest or interest-only—until the project completes.
5. Transition to Fixed Mortgage:
Upon project completion and acquiring the new code of compliance, clients often transition to a fixed-rate mortgage, offering stability and potentially lower rates than the initial floating rate.
Remember, each case is unique, and this process might differ based on factors like property value, scale of renovation, and financial circumstances.
Engaging with an experienced mortgage adviser like our team at NZ Mortgages can help navigate these nuances and secure the best financing options. Contact us today.
