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Renovation Loans: How to Finance Home Improvements in Australia?

By April 11, 2023December 7th, 2023No Comments
Renovation Loans How to Finance Home Improvements in Australia

Home improvement projects can be very exciting. From improving the garden to redoing the kitchen, they present the opportunity to reinvent your living space by putting a personal touch on your home.

However, funding such a project is less exciting. Renovation can be expensive, and many projects do not get off the ground due to a lack of money.

Learn more in this article about the funding alternatives for remodelling projects, including loans for renovations.

What are the different types of home renovation loans available in Australia?

Home renovation loans are designed to help homeowners fund home improvement projects, such as kitchen or bathroom renovations, adding an extension or installing solar panels. In Australia, there are several types of home renovation loans available, each with its unique features and requirements.

Personal Loans

An online personal loan is a quick and easy way to access a large amount of money at a reasonable rate. There are plenty of online lenders who offer quick loan approval and an easy application process, usually lending between $2,500 and $35,000 over 3 to 5 years.

  • Unsecured Personal Loans. This type of personal loan can be a good option for financing home renovations if you don’t want to put up collateral, such as your home or car. With an unsecured personal loan, the lender will consider your credit score, income, and other financial factors to determine whether to approve your application and what interest rate to offer you.
  • Secured Personal Loans. Secured personal loans are a type of loan where you put up collateral, such as your home, car or savings account, to secure the loan. These loans are typically easier to qualify for than unsecured loans because the lender has the assurance of the collateral to cover the loan if you fail to make payments

Unsecured personal loans may have higher interest rates than secured loans, and they may have shorter repayment terms, which can increase your monthly payments. Additionally, if you have a poor credit score, you may not be able to qualify for an unsecured personal loan at all.

Secured personal loans can be a good option for home renovations because they often have lower interest rates and longer repayment terms than unsecured loans. This can make them more affordable and allow you to borrow larger amounts of money.

Green Loans

Green loans are a type of loan that specifically finance environmentally friendly home renovations, such as the installation of solar panels, energy-efficient appliances, insulation, or other energy-efficient upgrades. These loans are designed to incentivise homeowners to make eco-friendly home improvements that can save money on energy bills and reduce carbon footprints.

Green loans typically have lower interest rates and longer repayment terms than traditional personal loans, making them more affordable for homeowners. Some lenders may also offer reduced fees or other incentives for borrowers who choose to finance green renovations.

Green loans are available from various sources including online lenders, banks, non-profit organisations, and government programs.

Mortgage Finance

Taking out a mortgage loan for your home renovations is also another option.

You can use your existing mortgage to include the cost of the renovations. This is known as a renovation loan, and it can provide you with a single, consolidated mortgage payment that includes the cost of the renovations.

Another option is to take out a home equity loan or line of credit. A home equity loan allows you to borrow against the equity you have built up in your home, while a home equity line of credit offers more flexibility and allows you to draw on the funds as needed. Both of these options typically have higher interest rates than traditional mortgages, but they may be a good choice if you have a significant amount of equity in your home and need to finance a large renovation project.

It’s important to carefully consider the costs and risks associated with using a mortgage loan to finance home renovations, and to work with a reputable lender who can help you navigate the process and find the best loan option for your needs.

Construction Loans

Construction loans are a type of loan that is specifically designed to finance new construction or major renovations. These loans can be used to cover the cost of labour, materials, and other expenses associated with a home renovation project.

For home renovations, a construction loan may be an option if you are planning major structural changes, such as adding a new room, building an extension, or completely remodelling your home. These types of projects can be more complex and may require a larger loan amount than a standard personal loan.

Construction loans typically have higher interest rates and shorter repayment terms than traditional mortgages or personal loans, as they are designed to be short-term loans for the duration of the construction project. After the construction is completed, the borrower can typically refinance the loan into a permanent mortgage or other long-term financing option.

Where can I use a renovation loan?

Renovation loans can typically be used for a wide range of home improvements and upgrades, including the following:

  1. Kitchen and bathroom renovations: You can use a renovation loan to update or renovate your kitchen or bathroom, including installing new cabinets, countertops, appliances, or fixtures.
  2. Structural renovations: You can use a renovation loan to make major structural changes to your home, such as adding an extension, building a new room, or changing the layout of your home.
  3. Flooring and tiling: You can use a renovation loan to replace your floors or tiles, or to install new flooring in your home.
  4. Painting and decorating: You can use a renovation loan to repaint your home or to make other decorative changes, such as adding wallpaper or installing new light fixtures.
  5. Outdoor renovations: You can use a renovation loan to make improvements to your outdoor living spaces, such as adding a deck, patio, or landscaping.

It’s important to check with your lender to see what specific renovations are eligible under their renovation loan program, as different lenders may have different requirements or restrictions.

Additionally, you should have a clear plan and cost estimate for your renovation project before applying for a renovation loan, so that you can ensure that you are borrowing an appropriate amount of money and can repay the loan on time.

Things to consider when applying for a renovation loan

When applying for a renovation loan in Australia, there are several factors you should consider to ensure that you choose the right loan for your needs and budget. Some important things to consider include:

  1. Loan amount: Determine the total cost of your renovation project, including labour, materials, and any other associated expenses, and make sure you borrow only what you need. Be careful not to overextend yourself financially by borrowing more than you can afford to repay.
  2. Interest rates and fees: Shop around for the best interest rates and loan fees, and compare offers from multiple lenders. Be sure to understand the total cost of the loan, including any fees or penalties, before signing any paperwork.
  3. Repayment terms: Choose a loan with repayment terms that work for your budget and lifestyle. Consider factors such as the length of the loan term, the frequency of payments, and any penalties for early repayment.
  4. Loan type: Determine which type of renovation loan is best for your needs. Consider options such as personal loans, secured loans, green loans, and construction loans, and choose the option that best fits your renovation project and budget.
  5. Lender reputation: Research lenders to ensure they have a good reputation and a history of fair lending practices. Read reviews and testimonials from other customers, and check for any complaints filed with regulatory agencies.
  6. Eligibility requirements: Determine whether you meet the lender’s lending criteria for the loan, such as credit score, income, and employment history.
  7. Plan for unforeseen expenses: Consider the possibility of unexpected expenses arising during your renovation project, and make sure you have a plan for how to cover these expenses if they occur.

By carefully considering these factors, you can choose the right renovation loan for your needs and ensure a successful and affordable home renovation project.

Helpful Tip:

One helpful tip in comparing home improvement loans is to calculate the total cost of the loan over its lifetime, including interest and fees. This will give you a better idea of the true cost of each loan and help you compare loan options in Australia more accurately.

Adding value to your property at a low cost

Here are some ideas to improve a home or property while staying at a low cost:

  1. A fresh coat of paint can make a big difference and is a cost-effective way to update the look of your home. Choose a neutral colour that will appeal to a wide range of buyers if you plan to sell in the future.
  2. Replace old light fixtures with modern, energy-efficient options. You can also add lamps or light fixtures in areas that lack sufficient lighting.
  3. Improving landscaping can increase curb appeal and add value to your home. Consider adding plants and flowers or even a small vegetable garden.
  4. Getting rid of clutter can make a home look more spacious and inviting. Consider donating or selling items you no longer need or use.
  5. Replacing old hardware, such as doorknobs, cabinet handles, and faucets can give your home a fresh look without breaking the bank.
  6. A thorough cleaning can make a home look and feel new. Focus on areas that are often overlooked, such as baseboards, windowsills, and light fixtures.
  7. Repurpose old furniture by painting it, reupholstering it, or using it differently. For example, an old dresser can be turned into a TV stand or storage unit.
  8. Consider taking on DIY projects such as painting kitchen cabinets, installing shelving, or creating a feature wall. There are many online tutorials and resources available to help you complete these projects.

By using these ideas, you can improve your home or property without spending thousands of dollars. Remember, small improvements can make a big difference and add value to your home in the long run.

Renovations that do not add property value

While most renovations can add value to a home or property, some renovations may not necessarily increase the value or may even decrease it. Here are some renovations that may not add property value:

  1. Personalised or Unique Design Choices: Design choices that are too personalised or unique may not appeal to potential buyers, and they may even decrease the value of your home. For example, a themed room or brightly coloured walls may not be to everyone’s taste.
  2. Over-the-Top or Luxury Renovations: Renovations that are too extravagant or luxurious may not be worth the investment if they don’t match the value of the home or the surrounding neighbourhood. For example, adding a lavish pool or a high-end wine cellar to a modest home may not add value.
  3. Poorly Done or Unlicensed Renovations: If renovations are not done properly or by a licensed contractor, they can decrease the value of your home. Poorly done renovations can be a liability for potential buyers and can turn them away from buying your home.
  4. Unnecessary or Non-Functional Renovations: Renovations that are not necessary or non-functional may not add value to your home. For example, a third bathroom in a two-bedroom home may not be necessary and may not increase the value of the home.

It’s important to consider the value of a renovation before committing to it. While some renovations may be appealing to you, they may not add value to your home or property in the eyes of potential buyers.

Other ways to finance home renovations


It’s a good idea to use your money rather than borrow as you won’t find yourself in debt once the work is complete. If you already have savings – great! Think of home improvements as an investment. The work will likely increase the value of your property meaning the money used to pay for the work has probably earned you more than if it was sitting in the bank.

If you don’t have savings but are reluctant to borrow, carefully plan the work to figure out how much money you will need. When you have your figure, put a savings plan in place and save money each payday. You will need to be disciplined and may need to cut back on spending to reach your savings goal, but it’ll be worth it in the end.

Use value in your home

You can pay for home improvements by freeing up equity in your home and speaking with your mortgage lender about an advance. If you choose this option, approach the deal with caution and carefully review the terms offered. For example, your lender may only offer an extension at a higher rate or force you into a longer mortgage period. If you are coming to the end of your current mortgage deal you could look to move the entire loan (including the renovation costs) to a new lender. You may even find a better rate, saving you money!

Financing large ticket items

For home improvement projects that involve purchasing expensive items, such as a new kitchen, buying on finance may be a viable option. You won’t need to save a huge amount as many suppliers now offer good rates on ‘buy now pay later’ purchasing with little-to-no deposit needed. You will need to make sure you can afford the repayments though, as the financing will increase your monthly outgoings.

Use a 0% purchase credit card

The credit card market is so competitive that providers offer great introductory rates to entice new customers. 0% purchase credit cards offer 0% interest on all purchases for a period, usually between 12 and 48 months. These credit cards can help to spread the cost of your home improvements at no extra charge. You can review credit card providers with Friendly Finance to find a deal that suits you.

The downside to a 0% purchase credit card comes when the introductory period ends. If you haven’t repaid your balance in full once the 0% interest rate period ends, you’ll automatically be switched to the credit card provider’s standard interest rate. This is usually between 18% and 24%. You must also remember to repay the minimum amount due on the credit card each month. A missed repayment will void the introductory offer and you’ll be charged standard interest rates moving forward, dramatically increasing the cost of borrowing.


When considering how to fund your home improvement project, it’s important to weigh the pros and cons of each option and choose the one that best fits your financial situation and goals. It’s also important to budget carefully and not take on too much debt, as this can lead to financial stress down the line.

By considering factors such as interest rates, establishment fees, loan repayment periods, and government programs, you can choose the finance option that works best for your specific needs and goals. With careful planning and budgeting, you can bring your home improvement dreams to life without breaking the bank.