Where To Find The Finance

IF YOU have decided on what improvements to make to your home or property and have estimated the costs, the next step is to raise the finance.

Banks, building societies, credit unions and finance companies count lending for home improvements as a reasonable slice of their business. For example, Australia's biggest home loan lender, the Commonwealth Bank, lent $37 million under its home improvement scheme throughout the 1985-86 financial year.

But before you embark on the home upgradings, ask yourself if you are over-extending your finances as well as the question of whether you are over-capitalising on the property.

Ideally, property improvement costs should be earned back when it is resold. And home owners should aim to spend money to make more money on their property.

St George Building Society's general manager of corporate services and lending, Mr Tim Birdsall, says there are two ways to raise money for home improvements.

One is from a secured loan or by taking out a second mortgage on your house. The other is a personal loan, which requires no security.

With the former method, the building society values your existing house and uses it as security. In addition, the customer's creditworthiness or ability to repay the loan plus any existing loans is checked.

St George charges slightly higher than a bank, asking 16.5 per cent on a 25-year loan. This translates to payments of $280 a month or $65 a week for a loan of $20,000. As with most 25-year loans, you only pay 4 per cent of the capital in the first five years so that after five years nearly all of the loan is outstanding.

Sometimes a personal loan is a better choice, if you can pay it off faster. St George charges 19.5 per cent for a personal loan and it must be repaid over a shorter period of five years. (The building society hopes to extend the personal loan to 10 years later this year.)

There is no need to offer the house as security for a personal loan but the society will evaluate the customer's ability to meet repayments.

The higher interest rate of a personal loan is partly offset by the lack of legal fees, stamp duty and valuations charged with the secured loan. These vary with the different values of the property and can be many hundreds of dollars while an unsecured loan costs a maximum of $200.

However, if you already have a mortgage with St George, the legal fees can be reduced.

Dale Miller, manager of lending services, retail, at the Commonwealth Bank, says applicants for the home improvement loan do not have to have a banking record with it before applying.

The home improvement loan is the most popular loan the bank has to offer renovators. It charges a 15.5 per cent interest rate, which translates into payments of $260 a month over 25 years or $264 over 20 years for a loan of$20,000.

Customers are judged on their total housing loan borrowings. These must not represent more than 80 per cent of the value of the property.

Capital repayments on those loans must not exceed 30 per cent of gross monthly income, a similar prerequisite for all home loan borrowers.

The maximum term of 25 years is dependent on the age of the applicant.

The Commonwealth Bank offers a personal credit line with an interest rate of 18.75 per cent to be paid over a maximum of 10 years. The security margin is lower at 70 per cent.

If you wanted to borrow under $15,000, there is an unsecured personal loan with interest rates of 19 per cent.

One simple way to finance improvements worth up to $5,000 is to borrow the money on your credit cards. You will be up for interest rates of up to 21 per cent for most Bankcards, Visa and Mastercards.

Borrowings on credit cards are usually geared to be repaid in a two-year period.