Renovation costs: Tips for calculating the investment
How much does it cost to renovate your house or your apartment? A realistic budget is key to being able to fully enjoy your upgraded home. Learn how to correctly budget the investments for a renovation and where you can save money.
Planning the financing of the renovations
In your mind, the images of a freshly renovated or remodeled home feel real. But there is still a lot missing to bring it to fruition. One of the first steps of a renovation or remodeling project is creating a budget. As soon as the extent of the construction work is known you should draw up a rough plan to determine the approximate costs.
Estimate the cost of 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 put together a rough cost estimate. In a medium-sized, single family dwelling, for example, replacing windows is likely to cost between CHF 30,000 and 50,000; a new bathroom, including tiles, costs CHF 20,000 to 25,000, and you'll shell out CHF 25,000 to 40,000 for a completely remodeled kitchen.
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 as well as receiving a credit increase. If relevant, you can apply for funding for energy-related refurbishments and reduce costs. You may also be able to receive contributions from your retirement provision (pension fund or Pillar 3a) as part of the promotion of home ownership scheme.
Renovating using bank financing
But what factors will determine whether the bank will grant a construction loan or increase the mortgage? First and foremost, the reasons for a renovation are important. Is it a question of maintaining or increasing value? Depending on the amount of the mortgage and the market value after the renovation, it is possible that part of the renovation can be financed by increasing the mortgage. What the bank co-finances ultimately depends on the starting point. Even if the renovation work does add value it does not automatically mean the desired investment will be co-financed.
Low interest rates will increase the budget for renovations
Current interest rates on mortgages are far below the long-term average. This considerably reduces the share of interest charges in many homeowners' household budgets. The difference between the industry-standard of 5% used to calculate affordability and your actual interest costs can be saved for investments. As seen in the sample calculation below, homeowners can thus quickly build up a tidy sum for maintenance on their properties.
Save interest, increase budget for renovations
Example of "theoretical" savings potential in Swiss francs*
|Mortgage interest rate p. a. (in %), as of May 2018||1.8%|
|Imputed interest rate p. a. (in %)||5.00%|
|Mortgage term (in years)||10 years|
|Interest expenses p. a. (1.8%)||9,000|
|Imputed interest expenses p. a. (5.00%)||25,000|
|"Theoretical" savings potential p. a. (3.20%)*||16,000|
|"Theoretical" savings potential over mortgage term (3.20%)*||160,000|
* Excluding income from possible savings accounts or investments.
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 that enhances the value of your home because you can deduct the additional debt interest because of the increased mortgage. This lowers your tax burden.