Bigbank: High EURIBOR Favors Fixed-Rate Renovation Loan as Alternative

According to Jonna Pechter, the head of Bigbank Estonia, due to high and potentially rising EURIBOR, home loan interest rates have become expensive, making a renovation loan with a fixed interest rate starting from 7.9 percent an attractive product for customers wishing to carry out repairs.

"Home loan interest rates are currently reaching up to 6 percent when combining EURIBOR and the bank margin, and may rise even further during the loan period, which is why a fixed-rate renovation and furnishing loan has become a worthwhile alternative for people this year to finance home updates," said Pechter. According to him, what also makes a renovation loan of up to 30,000 euros without real estate collateral more favorable is that Bigbank calculates interest on the remaining loan balance, not on the original loan amount. "With Bigbank, there are no restrictions on how the renovation loan is used and we don't check whether every last euro went to paint or floor tiles. People can freely decide how to use the loan amount themselves. Whether they want to use it for purchasing materials, paying workers, or even organizing a commemorative celebration."

As another worthwhile option for financing renovations, Jonna Pechter recommends considering home loan refinancing, during which one can simultaneously increase the loan amount by the renovation expenses. "Refinancing is the easiest way to lower home loan interest rates and offers should be requested from several banks. What is less known is that during refinancing, you can also increase the loan balance. Additional funds for renovation and furnishing work are entirely suitable uses for Bigbank's home loan," she highlighted.

"People say that buying a home is always the right time, but the only measure of truth for this saying is what stage of life and circumstances a person is currently in. The same applies to renovations – their necessity or urgency can only be determined by analyzing your property's condition and your life planning perspectives and financial possibilities," commented Pechter on the discussion about whether it makes sense to undertake major home renovation expenses in the current economic environment.

Bank manager's recommendations for creating the best renovation plan

The primary advice for undertaking home renovation is to spend sufficient time on planning – the old saying goes, measure nine times, cut once. "Time spent on planning helps achieve a higher quality result and saves money on both materials and labor. Surely we all have personal or friends' and acquaintances' stories about renovation experiences where someone wanted to fix something at home, and without doing preparatory work, enthusiastically demolished or destroyed an existing solution, only to discover that they should have first precisely determined material delivery times, worker availability, or at least taken measurements. If these steps are skipped at the right time, you can find yourself in a demolished home whose restoration timeline and financial prospects are more than unclear," shared the bank manager from experience.

It's also common, especially in older buildings, that renovation work tends to go like this: the plan might be to fix something small, but when old finishes or surface layers are removed, it turns out that problems run deeper and instead of a small repair, you end up dealing with work that falls under major renovation. Accordingly, the budget expands and the completion deadline recedes into the distance.

According to Pechter, renovation needs can essentially be divided into three categories:

1. a) Major renovations – the property has a substantial and structural problem that must be resolved in any case, otherwise the property becomes unusable or its value drops significantly – whether it's old and dangerous electrical wiring, rusted and leaking pipes, rotting floors, broken or clearly entirely inefficient or uncompetitive heating systems; non-existent or faulty ventilation; windows or exterior walls that let drafts through and send heating bills sky-high, etc.
2. b) Renovation-restoration repairs – replacing worn floor coverings, wallpaper, wall paint; replacing outdated sanitary fixtures or a creaky kitchen cabinet, etc. It is necessary both to achieve a higher quality living environment and to preserve property value.
3. c) Nice-to-have renovations – for better mood and thus improved quality of life or simply for the desire for change, minor or more significant refresh renovations and interior updates are done. This may not increase property value, but if such an investment is possible for a person and makes them happier, then why not.

When planning renovations, you should first (with expert assistance if necessary) get clarity on whether all the major things are in order in the living space. And only then can you discuss whether a refresh renovation could be done somewhere or whether it's possible to consider investing in aesthetic improvements.

I would particularly recommend doing a larger job all at once rather than piecemealing it. First, building-related matters are often interconnected and to do one job, you often need to tackle another or at least it's sensible and financially reasonable to do them together. If the need for piecemealing is only due to current lack of funds, I would consider using a loan to finance the renovation. The interest cost is often less than the sum that accumulates in the total renovation cost due to piecemealing the work. Plus the stress and inconvenience that come with living in a prolonged "construction zone."

Creating a precise renovation budget is even more necessary in today's economic conditions than in earlier times. Construction material and furnishing prices have undergone or are undergoing significant growth and there are still problems with their availability and delivery times.

For matters relating to finishes and the "surface layer" of renovation, every person should probably be able to manage budget planning with consultation from a building supply store salesperson. However, it is significantly more complex to plan a budget concerning "construction" or specialized work (water, electricity, and ventilation). This world has become so complex today and allows so many different options that likely without a specialist, an average person cannot choose the most reasonable solution or calculate its implementation cost.

As a rule, it is only possible to do everything very cheaply for those who make their living in the construction industry, have tested various manufacturers' solutions and materials, and therefore know how to find the most affordable or at least the best price-to-quality ratio products. An amateur renovator typically cannot manage this. Very-very cheap work usually also looks very-very cheap and tends to deteriorate or lose its appearance very quickly. If a person is doing renovation for themselves, they should rather look for lasting solutions. Savings can mainly come from the fact that through googling or consultation with an expert, one learns to select a suitable and financially sensible construction-finishing solution for their home/family, and then conducts thorough price comparison for its procurement among different building supply stores.