Whether you’re renovating because you want to sell your property or because of lifestyle changes, when it comes to home renovation you should take your time to figure out the best way to secure money and what’s worth investing in. 

And to say that home renovations are on the rise in Australia is an understatement. In 2021, the cost of renovation almost doubled from 2011, with figures from the ABS showing that Australians spent $12.3 billion on renovations.

What are the benefits of renovating? First and foremost, the major benefit is that renovating your home adds value to your property and saves you money. 

You might ask yourself “How do I borrow money for a renovation?”. There’s no best way to pay for renovations, but the process can often be more complicated than when buying your first home. This is where a mortgage broker can come in handy. In this article we’ll outline the ways to finance your renovation so you can make the most informed decision.  

Some of the most common ways Australians are funding their renovation projects

Before you figure out how to finance your renovations, it’s wise to realistically think about how much you want to spend. 

Emmanuel Guignard, Loanscope’s Senior Mortgage Broker and Director, says “the amount will very much depend on the property type and the area. You can overcapitalise if you build a marble bathroom in an apartment in Glenroy, but might turn away discerning buyers if you complete a cheap renovation on a house in a more affluent suburb.”

After assessing how much money you will need to finance your renovation, it’s important to assume you’ll go over budget and allow for a bit extra. 

So what are the finance options to consider for home renovation?

Depending on whether your renovation loan is for major structural changes or just a few changes in aesthetics, some of the most common ways to finance your renovation are:

  • a home equity loan
  • refinancing your existing home loan 
  • a mortgage redraw facility
  • a construction loan
  • lines of credit

Using equity to renovate your home

Using equity means to borrow against your mortgage for renovations. With every mortgage payment you make, you’re building the equity of your home. Equity is the difference between how much you owe and how much the house costs. And it’s money you can access without selling your home – and use for things such as renovations.

Refinancing mortgage for renovations

To refinance your home loan means to change loans to get better deals and interest rates, consolidate debt (credit cards, personal loans) or enjoy smaller fees. Depending on your situation, it could potentially be a lucrative way of getting some extra funds for your renovations. Check out our refinance calculator to figure out how much you could save.

Redraw your extra home loan repayments

A redraw facility is a home loan feature that allows you to make extra repayments on your home and withdraw them if you need to. If your home loan has a redraw facility, where you’ve made additional repayments, you could redraw those funds and use them to fund your renovation.

Construction loan

A construction loan can be a good option if you’re undertaking a bigger project. The way this works is that you’ll receive and pay the loan amount in increments. This means you’ll only have to pay interest at the end of your reno project.

Lines of credit

A line of credit could be a good solution to fund a minor renovation project or cosmetic renovations. A line of credit is a credit facility extended by the lender. It allows you to withdraw funds from your home loan or increase the home loan balance – thus increasing the mortgage for renovations.

Is it a good idea to use equity for renovations?

You might not be aware, but “average owners hold almost 50% equity in their home.”

National and state view of an average level of home equity in Australia. Source: CoreLogic

The main advantage of equity is that you top up your home loan and borrow extra on your mortgage for renovations, without having to take out a separate loan. 

“It is a great idea to use equity to renovate as not only the value of the property goes up, but it makes it easier to sell. There are a lot of buyers without imagination that cannot picture the potential of the property or do not have the time or inclination to renovate. This way, buyers can move in right away because it’s all done,” says Guignard.

Find out how much you can borrow

When looking to get a renovation loan, the borrowing power depends if your renovation is major or minor, if you’re using a licensed builder or doing it yourself. Typically, you can borrow around 80-90% of the purchase price plus the cost of renovations. Check out our affordability calculator to figure out how much you could borrow.

Talk to a professional

To find out the best way to fund your renovation and a solution that will work for you financially, you should talk to an experienced mortgage broker. At Loanscope, we have access to a wide range of renovation home loans. Whether you’re thinking to remortgage for home improvements or seeing how you can use your home loan for renovations, we can help you. Contact us today

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard