Get the lowdown on renovation loans

What is a renovation loan?

A renovation loan, also known as a home improvement loan, is a loan designed to fund the improvement of a home. This can either be your personal home, or an investment property. It doesn't matter if your intent is to improve your home for your own benefit, or with the aim to increase its value for future sale.

Depending on your situation and planned renovations, there are a variety of personal loans you can look towards to fund your home improvements.

What types of home renovation loans are there?

There are several ways to finance your home renovations. The best loan for you would depend on your circumstances and the kind of improvements you want to make. Your options include:

Unsecured personal loans

An unsecured personal loan allows you to borrow money without using an asset as security.

These loans are generally flexible, and can be used for more than just home improvements. Generally they will have higher rates or lower borrowing limits than secured loans.

Secured personal loans

A secured personal loan allows you to borrow money using an asset as collateral. For home renovations, you could use your house as security.

If you have a mortgage, you could also use the equity in your house as a guarantee. Your equity will have to be more than the loan amount to qualify.

Secured personal loans generally have higher borrowing limits, sometimes up to $100,000. But this depends on the value of your asset.

The interest rate is also often lower. This is because the risk to the lender is lower as you’ve offered collateral

Loan terms can also be up to 10 years.

Green loans

A green loan is a personal loan designed for green and sustainable home upgrades.

These loans come with lower rates and flexible repayment terms. But they have restrictions on how you can spend the funds. Your renovations will be limited to environmentally beneficial additions or upgrades.

You can use it to purchase a solar power system, a solar hot water system or energy-efficient appliances. You could also use it to add energy-efficient heating and/or cooling, installation of insulation and double glazing for windows.

Mortgage finance

If you already have a mortgage, you could refinance or remortgage your loan. This can give you a little extra cash to spend on home improvements.

If you have equity on your home, you could use it to refinance your mortgage and get a better deal. You could either talk to your current credit provider or find another lender offering better interest rates and fees. Refinancing can help you access funds to renovate your home.

If your home loan has a redraw facility and you’ve made extra repayments, you could also use it to fund your renovations.

What can I use a renovation loan for?

You can use a home improvement loan for a number of renovations. Some of them may be common fixes, like remodelling your kitchen. Some of them may be less common, like a star-gazing roof or hidden storage. It’s a good idea to identify what you want to accomplish before you begin. You could look into making stylistic, structural, functional or green changes to a house. Once you’ve identified what you need, you can use the loan for:

• Kitchen remodelling
• Bathroom remodelling
• Adding a swimming pool
• Green/energy-efficient additions (solar panels, new windows, insulation, etc.).
• Home repairs
• New exteriors
• Extensions
• Garden landscaping
• New furniture
• Adding storage space

Finder survey: If gifted $50,000, what percentage of Australians would do home improvements?

What should I consider when applying for a renovation loan?

You should ask yourself the following questions before taking out a renovation loan:

• Can I afford the repayments?
  To calculate the cost of your home improvement loan, you should account for both the interest rate and the comparison rate. The comparison rate includes the loan’s fees and charges, and is often more than the interest rate. It gives you an indication of how much the loan will actually cost. You should also consider your loan term and repayment frequency. This can help you determine if you can afford the loan. You can use our loan calculator to help you with this.
• How flexible is my loan?
  Look out for whether your loan allows you to make additional repayments or redraw funds. Some loans may also allow you to pay off the loan early, without penalties. You may also be given the option to change the loan terms if needed.
• Have I applied for the right amount?
  Borrowing too much or borrowing too little can be a problem. How much you borrow – that is your loan principal – will affect your interest rate. If you borrow too much, it will cost you more money. If you borrow too little, it may be difficult to get additional finance to complete your renovations.

Am I eligible for a renovation loan?

The eligibility criteria between lenders differs. Most renovation loans require that you are over 18 years of age, be a citizen or permanent resident of Australia, have good credit score and be in regular employment.

You will need to provide the following documents for a home improvement loan. Depending on the lender, you may be asked for more:

✔️ Proof of identification. An Australian driver’s licence or passport.

✔️ Proof of address. This might be a utility bill or bank statement.

✔️ Proof of income. This could include your employer’s name and contact details.

✔️ Details of assets. You will need to show proof of ownership of your home and other assets.

✔️ Details of liabilities. You will need to declare any outstanding debts, such as other loans or credit card debts.

How can I apply for a renovation loan?

• Work out what type of loan to apply for, how much you need to borrow and what you can afford.
• Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder’s comparison table.
• Select a lender. Click “Go to site” to be directed to the lender’s page, or “More info” if you want to read about the lender.
• Organise and prepare the required documentation. This will make the application process easier.
• Apply. Most lenders have their applications online.

• Why compare personal loans with Finder?

  Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)

  Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest.

  Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.

  Frequently asked questions about home renovation loans

  • Is it hard to get approved for a renovation loan?

    All lenders, regardless of the loan you apply for, will consider your credit history. If you have a good credit history, you should be able to get a loan without difficulty, granted you can afford it.

    Most lenders will ask for details about your income, employment, current liabilities, ongoing debts and defaults. They are also unwilling to lend if you have been or are currently bankrupt. It may also be difficult to get a renovation loan if you’re currently facing financial hardship.

  • What is the best loan for home renovations?

    There is no one best loan for everyone. This will entirely depend on your credit profile, personal circumstances and what you can afford to repay. A good first step is to check out a personal loan calculator and see what fits into your budget.

Written by

Rebecca Pike

Senior writer

Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products. See full bio

Rebecca's expertise

Rebecca has written 197 Finder guides across topics including:

• Home loans
• Cost of living
• Budgeting