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Renovation loans Australia
Like just about everything else, the cost of building has gone through the roof. It means doing even a small home reno can require a significant investment.
According to Money.com.au personal loan data, borrowers looking for a personal loan for a home renovation request an average loan amount of $16,783. That's a slightly higher average loan amount for other personal loan purposes, like debt consolidation, our analysis shows.
Of course, there are a few ways you can organise finance for a home renovation. Each has its pros, cons and varying costs.
In this guide I’ll share insider tips on renovation loan options and the process of budgeting and paying for a home reno. First up, here’s a brief overview.
In reno terms, think of that overview as a quick lick of paint to get you started. Now let’s really get into it.
How do home renovation loans work?
A home renovation loan is a personal loan you can use to fund improvements to your home. Here’s how they usually work:
Cheapest home improvement loan interest rates
Currently, the lowest rate home improvement loan has an advertised fixed rate starting at 5.76% p.a. (comparison rate* 6.55% p.a.) for an unsecured loan.
But this is the lowest advertised renovation loan rate. For a lot of borrowers, the actual rate will be higher. In fact, Money.com.au data shows that the average interest rate on a home renovation loan is 7.99% p.a.
You see, your interest rate will depend on factors specific to you. Your credit score is a big one.
The table below gives an idea of weekly renovation loan repayments based on different interest rates. As you can see, the difference between a lender’s lowest and highest rate can be massive. This is why it's important to get personalised quotes from multiple lenders.
Eligibility for home renovation loans
Different lenders treat risk differently, meaning every home renovation loan has its own eligibility criteria.
But these are the most basic qualifying criteria pretty much all lenders look for:
When assessing your application, lenders will also want to verify that you'll be able to afford the repayments. To do this, they’ll consider:
These factors typically also determine the interest rate you get on your home improvement loan, plus how much you can borrow. For example, bad credit borrowers may need to look at tailored options.
How to apply for a home renovation loan
You can apply for a home renovation loan online in a few minutes. Knowing how home renovations can go, it may be one of the easier aspects of the project.
Here’s how to do it in 5 steps:
The whole process can be completed in a couple of days from start to finish, although it may be longer for some people, like self-employed borrowers applying for a low doc loan.
How can I find the best home renovation loan?
Just like you would when choosing a builder, it’s a good idea to compare multiple home renovation loan deals before committing.
In particular, be sure to compare the interest rates, plus the fees you’ll be charged on the loan. These two factors will be combined in the loan’s comparison rate. Then, based on the term (duration) of our loan, you’ll be able to compare options based on the overall cost calculation.
But don’t stop there. Look at repayment flexibility too and whether you will have the option to repay the loan early without penalty. Finding a low cost renovation loan that you can repay early could shave thousands off the overall cost of your reno.
Using a construction loan for renovations
Construction loans are designed for building or substantially renovating a home. Generally they’re used on building projects with valued over $150,000.
To be approved you’ll usually need a signed all-inclusive contract with a builder, including a fixed price quote and plans.
Construction loans are structured differently too. After the lender approves your application, they will generally pay out funds in stages as the construction progresses.
During construction your repayments will generally only cover the interest on the loan. This means your repayments will be lower while the project is underway. Once it’s complete you’ll return to normal repayments of principal and interest.
Using your mortgage equity to renovate
If you have a home loan, you may be able to refinance it to fund your renovations. Essentially you’re borrowing against the value of your property.
To do this, your lender will need to revalue your property. The home equity borrowing process is unlikely to be as complex as taking out a home loan from scratch, but it can still be a lengthy process.
You’re also adding to your mortgage, which will either mean needing to extend the loan term, or increase your repayments.
Either way the cost will be spread out over a long period of time. This can make it an expensive way to pay for a renovation.
| Interest rate | Loan term | Monthly repayments | Total interest cost | |
|---|---|---|---|---|
Personal loan | 8% | 5 years | $608 | $6,498 |
Home loan | 5% | 25 years | $175 | $22,613 |
| Personal loan | Construction loan | Home equity | |
|---|---|---|---|
Amount available | Up to $100,00 | $150,000+ | Depends on borrower ’s circumstances |
Interest rates | Starting from 7% | Starting from 6% | Starting from 5% |
Loan term | Up to 7 years | Up to 30 years | Up to 30 years |
Property valuation required | No | Yes | Yes |
Lender requires building contract | No | Yes | No |
Security required | Optional | Yes | Yes |
Evaluating your project in detail in advance can help make things run smoothly. It can also help you decide on the type of renovation loan that may suit best.
Here are some tips to consider:
Be realistic about the cost of your renovations and what you can afford
Get multiple quotes on the total project cost before committing to a renovation loan
Add around 10-20% to the total estimated cost as a buffer
Factor in non-building costs, like temporary accommodation if you need it while your home is under construction
Make sure you secure the finance before you commit to the project
| Area | Average price | Costs |
|---|---|---|
Kitchen | $10,000 - $45,000 | Labour, appliances, fittings, flooring, structural changes |
Bathroom | $10,000 - $35,000 | Labour, tiling, fixtures |
Bedroom | $2,000 - $35,000 | Labour, structural changes, furniture |
Living room | $10,000 - $15,000 | Labour, flooring, furniture |
Outdoor | $2,000 - $10,000 | Labour, landscaping, structural changes |
Get your personalised home reno loan rates
See what renovation loan rates you actually qualify for by comparing multiple lenders at once.
What’s the best way to fund renovations?
Construction loans may be suited to large, high-cost renovations, while personal loans may be better for smaller, low-cost renovations.
Can I get a construction loan for renovations?
Yes, you may be able to get a construction loan to renovate your home. However, you’ll need to supply your lender with a deposit of 5% or more, a signed building contract and quotes, as well as meeting their credit criteria.
Can I pay for renovations with my existing home loan?
Yes it's often possible to increase your home loan amount to finance a renovation, particularly if your home has increased in value. This is known as an equity release and involves refinancing your home loan.
You may also be able to open a line of credit without refinancing your home loan. Speak to your lender to find out more.
Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.
Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
^Comparison rate warning
Unless otherwise stated, personal loan comparison rates are calculated based on a loan amount of $30,000 repaid over a 5-year term. The comparison rates only apply to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan. Check with the provider for full loan details, including rates, fees, eligibility and terms and conditions to make sure the product is right for you.
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General information only The information on this page is general in nature and has been prepared without considering your objectives, financial situation or needs. You should consider whether the information provided and the nature of any personal loan product is suitable for you and seek independent financial advice if necessary.
We are not providing you with a recommendation or suggestion about a particular personal loan. You should read the relevant disclosure statements or other offer documents before deciding whether to apply for or continue to use a particular product.
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