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

CAN you afford to renovate your house and pay off your home loan? Here are the calculations you need to do.

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.

71 Nelson St, Annandale changed hands recently for $1.15 million, nearly double the un-renovated price.

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.

Sonya Pala, co-founder of The Decorating School in action.

“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”.