Home makeovers: Tips for financing renovation work

What are renovations?

Renovation is the process of renewing something that already exists. When applied to a home, it means carrying out maintenance and repairs. A distinction is made between value-maintaining and value-adding renovations. The former are used to keep the building in good working order, while the latter are used for expansion purposes. If you refurbish a very old kitchen, for example, this usually counts as value-maintaining renovation work. But if you fit the kitchen with a steamer and other additional appliances, these are value-adding renovations.

Planning the financing of the renovations

In your mind, the images of a freshly renovated or remodeled home feel real. But there's still a lot missing to bring it to fruition. One of the first steps in a renovation or remodeling project is to set your budget. Once you know how extensive the building work is going to be, you should draw up a rough plan to estimate the potential costs.

Estimate the costs of a renovation

You can use reference values for a rough overview of the renovation costs. An online calculator can be useful, or you can also have an architect or building advisor submit a rough cost estimate. In a medium-sized single-family dwelling, for example, replacing the windows should cost between CHF 3,000 and 5,000, a new bathroom including tiles between CHF 20,000 and 50,000, and a completely new kitchen (depending on the model) between CHF 25,000 and 45,000.

Developing a financing solution for a renovation

Once the rough plan has been created and the costs calculated, the financing must be secured. Before starting the project, it is therefore advisable to work out a specific financing solution together with the bank. Together you can examine the possibility of using your own equity capital and receiving a credit increase. If relevant, you can apply for funding for energy-related refurbishments to reduce costs. You may also be able to make advance withdrawals from your retirement provision (pension fund or your Pillar 3a funds under the promotion of home ownership scheme. But be careful: These types of financing are only granted for value-adding measures.
 

Renovating using bank financing

But what factors will determine whether the bank will grant a construction loan or increase the mortgage? The reasons why you want to renovate are most important. Is your intention to maintain or add value? Depending on the amount of the mortgage and the market value after the renovation, it may be possible to finance part of the refurbishment work by increasing your mortgage. What the bank will co-finance ultimately depends on the starting point. Even if the renovation work does add value, it doesn't automatically mean the desired investment will be co-financed.

Apply for funding for renovations

If you want to renovate your home in order to improve its energy efficiency, you can benefit from subsidies. The federal government, cantons, and municipalities have various energy efficiency subsidy programs in place. For example, if you repair an old facade and improve its insulating properties, this counts as a measure that's eligible for subsidy. You can find out here what can be subsidized in your canton.

Renovate your home but minimize costs

An integral part of the financial consideration of a renovation is the tax burden. Imputed rental value, amount of debt and the new property value are some of the factors influencing the tax planning of a renovation.

Save taxes with value-maintaining renovations

You can deduct value-maintaining expenses from your taxes as property maintenance costs. The deciding issue is in which tax period the value-maintaining expenses will be incurred. Instead of deducting all costs in just one year, it may be useful to distribute the renovation work over several years for sustained tax savings. However, if a renovation is needed urgently, it is advisable to complete it immediately. Taxes can also play a significant role in more extensive renovation work that enhances the value of your home, as you can deduct the additional debt interest because of the increased mortgage. This lowers your tax burden.