Home renovation loans: What you need to know to get started

Whether you want that pool before summer or are looking to renovate your kitchen to increase your home’s resale value, there are several options to choose from in terms of a renovation loan.

The average Australian renovation costs between $63,000 and $72,000. That price tag alone is enough to make most homeowners consider their financial options carefully. Depending on your goals and budget, you might choose a construction loan, use your home’s equity, or top up your existing mortgage.

In this guide, we’ll cover how renovation loans work, the main types available, and expert tips to make sure you choose the right one for your project.

What is a home renovation loan?

A home renovation loan is a way to borrow money for upgrades or repairs to your property. You might get all the loan money upfront in one payment, or receive it in instalments as each stage of your renovation is finished.

Common reasons people take out home renovation loans include:

• Cosmetic changes like paint, flooring, or cabinetry
• Fixing damage from leaks, storms, or ageing structures
• Adding more space with an extension or wall removals
• Sustainability upgrades, like adding solar panels or double glazing

The loan can be secured, which means it’s tied to your property as collateral, or unsecured, which doesn’t require property security but usually comes with higher interest. 

How home renovation loans work

Renovation loans typically follow a simple process, but the exact steps can vary depending on your lender and loan type. 

Here’s an overview of what the process usually looks like.

Step 1: Application

You apply with a lender or broker, sharing details about your renovation plans, quotes, and budget.

Step 2: Assessment

The lender checks your income, credit history, property value, and whether the project meets their criteria.

Step 3: Approval

The lender will calculate how much you can borrow and on what terms. 

Step 4: Disbursement

Funds are paid in a lump sum or in stages as the work is completed. 

• Lump sums are common for smaller projects where all the work starts at once. 
• Staged payments are typical for larger builds, meaning that the lender releases money only when each part of the project is finished.

Types of home renovation loans

The best loan for your renovation depends on your budget, project size, and whether you’re happy to use your home as security. 

Here’s a quick overview of the most common loan types and what you need to consider in advance. 

Construction loans

For big projects, lenders tend to release money in stages as each part of the build is completed. You’ll need approved plans, a licensed builder ready to go, and inspections before funds are released. 

Tip: Keep a detailed schedule of work to avoid delays between payments and construction. The Mortgage Agency can help manage the paperwork so that each stage is funded on time; contact the team to explore your options. 

Personal loan

This is an ideal loan for smaller renovations, where funds will be paid up front. For a personal loan, secured loans are cheaper, while unsecured loans offer more flexibility. 

Tip: Compare comparison rates to see the true cost once fees are included. The team at The Mortgage Agency can help you find low-rate options that match your budget.

Home loan top-up

This is when you increase your mortgage to cover renovation costs. It’s often cheaper than a personal loan, but it will raise your repayment amount or extend your loan term. 

Tip: If you’re close to paying off your mortgage, a top-up may not be the most cost-effective choice. Our team can calculate the long-term cost difference between a top-up and a separate loan to help you make the most informed choice. 

Refinancing

This option allows you to replace your mortgage with a larger one to free up equity. This can suit large projects but may involve break fees or new loan costs. We can compare lenders to help you secure a better rate and the funds you need. 

Tip: You can use refinancing as a chance to shop around and upgrade to a loan with better benefits.

Home equity loan

You may be able to borrow against your home’s value without changing your existing mortgage. This means you’ll have two separate repayments to manage. We can help work out how much home equity you can safely access without it affecting your lifestyle and financial goals.

Tip: It’s important to keep some equity untouched as a buffer for emergencies.

[Add video: Home Equity – What It Is, How It Works, and How You Can Use It to Grow your Money – Broker Tips]

Offset/redraw facility

You can use extra repayments or savings in your mortgage-linked account to fund renovations. There won’t be any new debt, but it may extend your loan term if you don’t replace the funds. 

Tip: Check if your lender charges fees for redraws or has limits on how often you can access the funds.

Are you eligible for a renovation loan?

Most lenders have similar criteria for approving renovation loans. You’ll need:

• To be at least 18 years old
• To be an Australian citizen, resident, or visa holder
• To have a regular income  (often $25,000+ per year for personal loans)
• A good credit score

Secured loans require proof of home ownership, while larger projects may need detailed plans or quotes. Expect to provide ID, payslips, tax returns, and a breakdown of your expenses. Much like when you applied for your initial mortgage, your lender will need to assess your full financial picture.

Want to know if you qualify? Book in your free, no-obligation discovery session with our team today.

How to compare your loan options

Before you commit to a renovation loan, you’ll need to understand the size of your project, how quickly you want to repay it, what the total cost over time will be, and whether you can realistically afford to take on the additional debt. 

The right choice of loan can save you thousands in the long run and help you avoid unnecessary stress during the build. 

Here are some key things to consider before you decide on what loan is best for you.

Loan amount needed

You want to match the loan type to the scale of your renovation. A construction loan will suit large structural projects, while a personal loan might be enough for smaller upgrades.

Ask yourself: Do I need to borrow the full cost, or do I just need to borrow a little bit to top up what I’ve already saved?

Interest rates and comparison rates

The interest rate determines your base repayment amount, but it doesn’t tell the whole story. The comparison rate combines the interest rate with most fees and charges, giving you a clearer picture of the loan’s true cost. Looking at both helps you avoid choosing a loan that looks cheap but costs more overall.

Ask yourself: Will I still be able to afford repayments if the rate goes up or hidden fees push up the total cost?

Loan term

Shorter terms mean higher repayments but less interest overall. Longer terms lower repayments but cost more over time. Consider which works better for your lifestyle.

Ask yourself: What matters more right now, lower monthly costs or paying less interest in total?

Fees

Look out for establishment, monthly, and early repayment fees. These can secretly add up and offset a lower interest rate.

Ask yourself: Is my loan actually cheaper, or is it more expensive once you factor in the fees?

Security

Secured loans are backed by an asset, usually your home, which the lender can claim if you don’t meet repayments. This security often means a lower interest rate, but it also increases the stakes if your circumstances change.

Ask yourself: Am I comfortable using my home as security, and do I have a plan for if my financial situation changes?

Flexibility

Some loans let you make extra repayments without penalty, access a redraw facility, or use an offset account. These features can help you pay off your loan faster and save on interest. Without them, you’re locked into the repayment schedule, even if you have spare funds.

Ask yourself: Will I want the option to pay my loan off early or access extra repayments later?

Project scope

The size and complexity of your renovation can determine which loan is most suitable. Cosmetic updates may be covered by a simple personal loan, while structural projects often need a construction loan with staged payments and lender checks. Choosing the wrong structure can cause funding delays mid-project.

Ask yourself: Does my renovation need progress payments or one upfront lump sum?

7 expert tips before you apply

We have extensive experience helping clients secure renovation loans, and we know that being prepared can make the process faster, easier, and more cost-effective. 

Here are our seven tips, based on 14+ years of experience in the industry. 

1. Define your renovation goals: Before applying for anything, you need to decide exactly what you want to achieve and separate essentials from nice-to-haves.
2. Get detailed quotes: Approach licensed builders and always ask for itemised quotes, as lenders often require these to process your application.
3. Always add a cost buffer: Allow 10–15% extra in your budget for unexpected expenses, as most projects end up costing more than the initial estimate.
4. Know your borrowing power: Understand how much you can realistically borrow based on your income and expenses.

[Add video: How to Increase Borrowing Power in Australia | Loan More Money | Explained in 9 minutes]

1. Use a loan calculator: This allows you to play around with how different loans will affect your repayments. They can be helpful when you’re trying to define your budget.
2. Compare all elements of the loan: Always look beyond interest rates to features, fees, and flexibility. Many lenders will actually cost more in the long run, but hide it within complicated fee structures.
3. Work with a mortgage broker: Working with a mortgage broker is a no-brainer. You get a better deal financially, and you’ll have support throughout the process. 

The Mortgage Agency is ready to help guide you, compare options, and negotiate the best deal for your situation. Book your free, no obligation discovery session today. 

How The Mortgage Agency can make your life easier

Renovation loans come in many forms, from construction finance to personal loans, top-ups, and equity release. The right choice depends on your goals, budget, and how you want to manage repayments.

In our experience, finding the best option means looking beyond the marketing to consider a number of features, including flexibility and long-term cost.

Don’t feel overwhelmed by all the options – call in the experts to help. 

At The Mortgage Agency, we compare hundreds of loans, handle the paperwork, and work with your builder and other professionals to keep your project moving. 

This can be a major stress-saver when you’re already in the middle of a renovation project. 

To get started, book your free discovery session today, call Tony at 0423 718 612, or email tony@themortgageagency.com.au.

Frequently Asked Questions