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How To Finance Your Kitchen Renovation The Smart Way

Over the last few years, we’ve been spending more time than ever at home. 

The Covid-19 pandemic had us working from home like never before.  We pressed pause on overseas holidays and stopped attending large scale events. And, as we spend more time at home, we inevitably consider how our home environment is working for us. That spare room full of junk might be better utilised as a home office. That garage could be a dual-purpose garage and rumpus room, or garage and home gym. Re-evaluating home spaces and separating work and play zones has become a priority for many of us. 

With the kitchen often considered the heart of one’s home, particularly now with entire households needing to work and educate from home, it has become a focus area of many Kiwi households to refresh or renovate.  

Financing a kitchen remodel

The benefits of renovating a kitchen

Whether you want to mix up the aesthetic or you need to make the space more functional, there are plenty of benefits to upgrading your kitchen.

Great return on investment  

Kitchen renovations typically have a great return on investment, adding significant value to your property and increase the resale value of your home. For potential buyers, a newly renovated kitchen can be a huge plus – you’ve done the hard (and often expensive) work, so they don’t have to! You’ll want to be mindful to not overcapitalise if you plan on renovating for resale

Improved functionality 

Sometimes a kitchen renovation can be instigated by a problem in your kitchen – a burst pipe, broken oven or another aspect of your current kitchen that needs to be repaired or replaced. This can be the perfect opportunity to consider making other upgrades around your home. You might even get a better deal on your whiteware by purchasing multiple items.

A kitchen you’ll love to be in

Remember, kitchen renovations don’t always need to be expensive. A ‘facelift’ can often be achieved without using tradespeople or needing council permission. Think updating cupboard doors, replacing handles and freshening up things with a new coat of paint. These small improvements, from swapping out hardware to replacing bench tops can make a huge difference to your enjoyment of the space. 

Regardless of the scope of your project, you may need to consider how you’ll fund it. Read on for some options for financing your kitchen renovation or any other home improvements.

Understand your kitchen renovation budget

Renovating your kitchen is no small task. Always understand your costs upfront, and plan how you’ll manage and fund the project, even if you break it into phases.

An excellent first step is to get a clear idea of your plans and costs. Head online to get a feel for appliance costs, fixtures and fittings and use an online calculator to understand your tradespeople costs. Bear in mind you can trim costs by sourcing materials and doing some work yourself, but you’ll need registered professionals to undertake technical work such as plumbing, electrical and structural elements of your project.

Some people use a kitchen designer or kitchen renovation company to scope the project and estimate costs accurately. This could be helpful if your project is on the bigger side. 

If costs feel unmanageable, there are always ways you can trim your project costs but still realise the kitchen you want. Think about alternative benchtop materials (wood or metal rather than stone) and using second-hand cabinets or appliances. Once you have a firm handle on your costs, you can then assess your finances for how you might fund the project. It’s always good to budget for contingency – this allows for changing costs and ensures you have funds available should something go wrong such as additional structural work needed or unexpected plumbing or electrical work required. 

Once you assess your renovation project budget, you can look at ways to finance your renovation. 

5 ways to finance kitchen renovations

1. Personal Loan

A personal loan can be a great way to finance a kitchen renovation – you may need to top up your savings or finance the whole project. Borrowing a small amount of money could realise your dream kitchen and add value to your property. A great benefit of a personal loan can be to have cash in hand so you can secure tradespeople at short notice and potentially negotiate better rates with them too. You’ll also be able to take advantage of those appliance sales and potentially source cheaper appliances for your kitchen. 

Do your research and make sure that you’re getting competitive interest rates on any personal loan. Usually, personal loan interest rates are lower than credit card rates, which can be a better finance option. 

A healthy credit score will be needed for any finance application (personal loan, credit card or another type of lending). Your finance application will likely take your credit score in to account. Your credit score contains information about your previous approved credit applications and looks at whether you have paid your debt off under the terms of your credit agreement. Lenders can access your credit score information to assess your creditworthiness whenever you apply for finance. 

Personal loans are quick to apply for and simple too. With a lender like Nectar, you can apply online and get a personalised loan quote in just a few minutes.* Then you just need to decide on a personal loan amount and what repayment option suits you. If your application is successful, you could receive the cash into your bank account as soon as the same day. This will be particularly handy if your kitchen renovation is initiated by an emergency such as a flood or failing appliances. 

What’s more, there are no early repayment penalties with a Nectar personal loan. 

2. Home Improvement Loan

A Home Improvement Loan is a loan specifically for renovations or urgent repairs. It can be a great option if you have little equity in your home or need to access finance quickly to get your project started. 

The simplicity of a Home Improvement Loan can make them attractive. A lender such as Nectar ensures you can apply online, doesn’t require extensive paperwork and enables you to access up to $25,000. Repayments are also flexible and can be set up to best fit your lifestyle and other financial commitments. What’s more, the funds may hit your account the same day. 

As with other types of finance, it’s always sensible to do your research on interest rates and loan terms to make sure you are making the right choice for your financial situation.

3. Mortgage Redraw

A mortgage redraw allows you to withdraw the money you have already paid against your mortgage. Typically, your mortgage lender would allow you to withdraw a lump sum to cover the cost of your kitchen renovation project. This type of finance is usually only available if you’ve made additional repayments against your mortgage (on top of your expected minimum payments).

If you’re interested in understanding more about a mortgage redraw and repayment terms and rates, speak to your mortgage lender directly. They will have plenty of guidance about whether this is a finance option you could consider.

4. Mortgage Refinance

A mortgage refinance differs from a mortgage redraw in that you take out a mortgage or home loan with another provider to benefit from lower rates or better mortgage terms. It also allows people to borrow more money – for example, to finance a kitchen renovation. 

By considering a mortgage refinance, you may be able to access a lump sum for your home renovation project. Do your homework on mortgage rates and terms, though, and make sure the new mortgage lender offers competitive rates. The paperwork required to manage this change in lenders may not be worth the research necessary and hassle for a small renovation project.

5. Credit Card

Should you use a credit card to finance a kitchen renovation?

If you’re after a kitchen refresh as opposed to a full-scale renovation project, a new credit card or extending the limit on your current one could be an option for you. Credit cards can be used for purchasing materials and appliances, but be aware that you may not be able to pay your tradespeople with your credit card (or they may charge you extra for doing so).

If you’re sure of your costs and know you can cover them by using a credit card, this could be a good option for you. Check the interest rates and credit card terms carefully to ensure you’re across the total costs and understand your repayment commitment.

Choosing a suitable payment method  

Of course, you don’t need to limit yourself to just one way of financing your renovation project. It might make sense to use a mix of two financing options, so you have the best of all worlds. Perhaps you already have a credit card and can comfortably afford a $2,000 credit limit increase. This could be the perfect amount for the supplies you’ll need to action your kitchen renovation. You may also consider a small personal loan to pay for your tradespeople costs. This might be a more straightforward payment method than mortgage finance, which requires going through layers of paperwork. Personal loans have higher interest rates than mortgages. However, they’re usually much lower than a credit card. Personal loans typically have much shorter repayment terms than mortgages, meaning while the interest rate is higher, the actual interest you pay is much lower.

Some quick numbers:

  • $25,000 personal loan @ 13.95% p.a. interest rate paid back over two years – your interest repayments will be $3,794. Total repayment amount is $28,794.
  • $25,000 mortgage @ 4.5% p.a. interest rate paid back over 15 years – your interest repayments will be $9,425. Total repayment amount is $34,425.

Hidden costs of kitchen renovations

Despite significant planning and budgeting, sometimes renovation project costs can escalate. There are many factors that can influence a budget blowout, such as”

  • More expensive building supplies due to international shipping costs increasing, 
  • An expected plumbing issue that needs to be resolved before your intended project can start
  • Tradespeople underestimating the time needed to complete the project
  • Unexpected costs for demolition and rubbish disposal 

The hidden costs of renovations can be steep, adding financial stress to your project, so it’s wise to build in a healthy contingency or buffer into your project budget. This will allow for unexpected costs and ease financial stress. And if you don’t end up using it, you can always consider purchasing that new saucepan set or knife block to set off your brand new kitchen!

Getting started with Nectar

Need a great rate on a personal loan? We’d love to help with your personal loan requirements. Check out how much you could borrow and learn more about our home improvement loan. You can get started with Nectar and receive your loan options in minutes*. Borrow better, faster today!

*Responsible lending checks and Nectar’s lending criteria apply.