24 Aug Granny Flat Financing Options
Higher property prices in Sydney have a created a two-fold opportunity for those looking to build granny flats on their property. Firstly, many people have equity in their homes that they can readily access to finance construction. Secondly, with property prices increasing, rental yields are reducing on investment properties (dropping below 3% on houses vs a regional average of 6%) – with their excellent rental yields granny flats have become a very attractive alternative.
Options For Financing Your Granny Flats
When financing granny flats, there are generally three options:
Refinance or ‘cash out’ to release equity in your home
Move to a lender with a good cash out policy – this will allow you to release built up equity in your home (equity being the difference between your home value and your home loan balance) to pay for your granny flat.
If your current home loan is with a lender with a good cash out policy, we would not do a full refinance – the best approach here is to have your home valued, and request a cash out with your existing lender.
Borrow against the equity in your home
You can also take out a ‘Line of Credit’ or LOC facility to access the equity in your home. The advantage of taking a line of credit over a cash out is that it’s simpler to track the expenses incurred against your granny flat because it’s a separate and standalone mortgage.
Lines of Credit generally attract higher interest rates than a standard home loan, currently around 1.00% more expensive on average.
Granny Flat Construction Loan
If you don’t have enough equity built up in your home, you can take out a construction loan to build your granny flat. This loan is interest only over the construction period, and reverts to Principal and Interest payments upon completion.
When deciding whether to approve a construction loan, the lender will take into account the future estimated value of the property upon completion of the granny flat. In order to service the debt, lenders can estimate the future rental return on the granny flat.
Construction loans require two additional pieces of information:
- Signed contract with the builder
- Council Approved Plans and Specifications
We can help
Gibson Mortgage Solutions specialise in obtaining finance for granny flats – we can determine the best solution for you and take the stress out of the process. Call Kyle today on 0431 972 892 or visit https://lounginglizards.com.au/ for an obligation free discussion about your needs!