How to finance a renovation

From a major renovation to new flooring or a lick of paint, most Australian homeowners will at some point put themselves through some form of home improvement.

The cost, of course, will depend on the scale of the improvement. Whatever the budget, finding the money for a renovation isn’t always easy. Below we cover some of the most popular methods of financing a renovation.

  1. Use your home loan’s redraw facility

Redrawing on your existing home loan is an easy option to gain quick access to renovation funds. If you’ve paid more than the minimum repayments on your variable rate home loan, you will be ahead on your repayments. If your loan has a redraw facility, you will be able to access the extra money you’ve paid into the loan and put it towards the renovation. This is a great option for small renos.

  1. Take out a personal loan

Personal loan amounts are generally limited to $30,000 or less, so once again this option is suitable for smaller renovations and improvements. The interest rate you pay will be higher than your home loan, but because the loan period is shorter – usually three to five years – the overall interest you end up paying will be kept to a minimum.

  1. Refinance your home loan

According to the Mortgage and Finance Association of Australia (MFAA), renovation is the most common reason for refinancing a home loan. Some homeowners also consider refinancing to gain a better interest rate, to switch from a variable interest rate to a fixed rate (or vice versa) or to access better loan conditions.

Refinancing is simply replacing your current loan with a new one, either with a new lender or your existing lender. It works by using the new loan to pay out your old loan, and in the case of renovation you would increase the size of the loan to cover the cost of renovating. Keep in mind, however, that refinancing will increase the size of your repayments and cost extra money in fees and charges in the short term.

  1. Apply for a construction loan

More suitable for a major renovation – or a complete rebuild – a construction loan is a type of mortgage for the sole purpose of building a new home or a full-scale renovation. Instead of borrowing a lump sum, your lender will split the full loan amount into separate payments known as “progress draws” that are paid directly to the builder during the construction process. During this time you will generally pay interest only, with principal and interest payments beginning once the renovation is completed.

  1. Opt for a line of credit loan

A line of credit loan is an approved limit of borrowings, which allows you access to funds as and when you need them. It’s a handy option for renovators as interest is only charged on the money you use and you can access it at any time through a regular savings account or credit card. You may need to exercise some discipline, however, to ensure you don’t withdraw money for purposes other than the renovation.


Michelle Hutchison is the Money Expert for, one of the biggest online comparison networks in Australia, and the newly launched in the United States.