Home renovation finance options

A variety of renovation home loan options are available:

refinancing your existing home loan

Refinancing your existing home loan can involve:

  • borrowing an additional loan amount, and/or
  • borrowing against the equity you have built up in your home over time. This is also known as a ‘home equity loan’. You can build up equity in your home by it increasing in value and making your home loan repayments. For example, if you have a home worth $600,000 and you owe $400,000, your equity in it is $200,000 (i.e. $600,000 less $400,000).

You can potentially refinance with your current lender or with a different one.  When you refinance, you may be able to extend your loan term if you need to make your repayments more affordable.                                

using your home loan’s redraw facility

(If you have one and you have funds available).

A redraw facility lets you withdraw any additional home loan payments you have made over time. If you have enough redraw funds available for your renovation, this is an alternative to refinancing.

taking out a construction loan

Prepare your documentation according to construction stages:

A construction loan is a suitable finance option if you’re doing a large renovation project like a home extension. The loan would be separate to any existing home loan you have.

If you’re approved for a construction loan, funds are progressively reached as construction milestones are reached. The loan is usually ‘interest-only’ until all the funds have been drawn. This means that you only pay interest, so your repayments will be lower. At that time, it becomes a ‘principal and interest’ loan and your repayments will increase because you’ll be repaying the amount you’ve borrowed plus interest.

establishing a line of credit

A line of credit gives you finance approval up to an agreed limit. You can use these funds for your home renovation and you’re only charged interest on the funds you use.

taking out a personal loan

Personal loans are another renovation finance option. However, it’s important to understand that personal loan interest rates are higher than home loan interest rates, so it’s a more expensive option. This includes secured personal loans that have lower rates than unsecured personal loans. Both will be more expensive than other types of renovation finance (excluding credit cards, see below).

credit cards

Credit cards are usually the most expensive form of finance. You should avoid putting renovation costs on a credit card unless they are small and you’ll be able to fully repay the amount during your card’s interest-free period.

Renovation home loan FAQS

What types of renovations can you do?

Common renovations that can add significant value to your home include:

  • kitchen,
  • bathroom,
  • extensions,
  • landscaping,
  • adding a pool, decking or outdoor area.

You can also do structural renovations to your home if necessary.

How much can you borrow for renovation loans?

This depends on your individual financial situation and how much you can afford to repay. You can use our loan repayment calculator to help you work out how much you can afford to borrow for your renovation.

What government grants are available for renovation?

The federal government announced the HomeBuilder program in 2020 as a response to the economic impact of COVID-19 restrictions. $15,000 renovation grants are available under this program for eligible applicants. The key eligibility requirements include:

  • signing a renovation contract between 1 January and 31 March 2021 for your renovation work to commence within six months of the contract date.
  • the renovation must be substantial and valued between $150,000 and $750,000.
  • the value of the property you are renovating cannot exceed $1.5 million.
  • an annual income less than $125,000 for individuals and $200,000 for couples.
  • lodging your application for the grant by 14 April 2021. In Victoria, this must be done with the State Revenue Office.
What are the benefits of renovating over moving?

Renovating helps you to avoid selling and purchasing costs such as:

  • real estate agent fees,
  • stamp duty, and
  • legal/conveyancing fees.

It can also:

  • add significant value to your home (or investment property) if it’s done well.
  • allow you to adjust your home to suit changing family needs (for example, a growing family).
What are the risks of renovating?

The potential risks of renovating include:

  • getting more expensive finance than you should,
  • overcapitalising your home (i.e. spending more on your renovation work than the value of your home will increase when it’s done),
  • devaluing your home if the work is inappropriate or poor quality, and
  • cost blowouts.
What happens if you have renovation cost blowouts?

You should factor an amount for potential for cost blowouts into your renovation finance approval. After all, you don’t want to get stuck with a partially completed renovation due to lack of finance!

You can also help to protect yourself against cost blowouts by entering into contracts with renovators at fixed rates.

Should you take out renovation insurance?

A licensed builder will be legally required to take out appropriate insurance to cover the renovation work. Most lenders prefer you to use a licensed builder as a condition of approving your renovation finance. It’s also important to get relevant council approvals for any renovation work that’s done, especially if you’re doing the work yourself.

You should also read through the product disclosure statement for your home insurance policy to find out if it has any special terms and conditions for renovations.

What is a comparison rate?

A comparison rate is the total cost of a loan or credit, including both interest and any loan fees or charges. When you see two interest rates on a loan from a financial services provider, the higher one is the comparison rate. The lower one only includes the cost of interest. Lenders must advertise their comparison rate on products to be legally compliant.

How do you get a renovation home loan?

At ARG Finance, our experienced team of mortgage brokers can help you to choose the right lender and renovation home loan. We’ll take into account your objectives, financial situation and needs before recommending appropriate finance for you.

Contact us today to find out how we can help you to get a renovation home loan!