Renovation & Home Improvement Loans

"Renovation loan" covers several different products, and picking the wrong one is expensive. Before anything else, it is worth knowing which is which, because the right answer depends on the size of the job and whether you have equity in the property.

The three ways people fund a renovation

A mortgage top-up or redraw. Borrowing more against the home, or drawing on what you have already repaid. Usually the cheapest option because it is secured against property and the term is long. It requires equity, it involves your mortgage lender, and it takes longer to arrange. Stretching a kitchen across twenty-five years of mortgage also costs more in total than the sticker price suggests.

A construction loan. For major structural work, extensions and rebuilds, released in stages as the build progresses, with inspections along the way. This is a different product with different requirements, and it is generally arranged with a mortgage lender.

A personal loan. Unsecured, or secured against an asset such as a vehicle. Fixed amount, fixed term, fixed repayment, and no involvement with your mortgage at all. Faster to arrange, priced higher than a mortgage rate because the lender carries more risk, and paid back over a few years rather than decades.

This page is about the third. That is what we arrange, and it is a genuinely good fit for some renovations and the wrong tool for others.

When a personal loan suits a renovation

The job is a defined size. A kitchen, a bathroom, flooring, a deck, landscaping, solar and batteries, air conditioning, a shed. Projects with a quotable scope rather than open-ended structural work.

You do not have equity, or do not want to touch the mortgage. Recent buyers often have neither the equity nor the appetite to reopen a home loan for a bathroom.

Speed matters. Personal loan approvals are measured in days. Mortgage variations are measured in weeks.

You want it paid off. A short fixed term means the renovation is paid for and finished, rather than quietly riding along on the mortgage for the next two decades.

When it usually does not suit: major structural work, extensions, anything needing staged progress payments and inspections, or a project large enough that spreading it across a mortgage genuinely makes more sense. If that is where you are, the mortgage route is the better conversation and it is worth having it with a mortgage broker rather than us.

Paying the builder

Personal loan funds are advanced to you rather than released in stages against inspections, which suits the way most smaller renovations are paid for: a deposit, progress payments, a balance on completion.

Two practical points. Match the drawdown to the job. Taking the full amount months before work starts means paying interest on money sitting in your account, and money in an account gets spent. Keep the contract sensible. Deposit limits and contract requirements for domestic building work are set by each state and differ, so check what applies where you are before handing over a large deposit.

Budget for the overrun, honestly

Renovations run over. It is not a failure of planning, it is the nature of opening up a house.

Borrow for the quoted job plus a realistic contingency, and be clear with yourself about what you will do if it goes beyond that. Going back for a second loan halfway through is harder than arranging it properly once, because the first loan is now on your file and counted against you. If the project is genuinely open-ended, that is an argument for the mortgage route rather than a personal loan.

It is also worth being honest about value. Some work adds what it costs and some does not, and borrowing on the assumption that the house will simply absorb it is how people end up with a renovated kitchen and a debt the property does not support.

Secured, if you have an asset

If you have a vehicle or another asset, a secured personal loan is generally priced better than unsecured borrowing, because the lender's risk is lower. Our guide to secured loans explains how that works, and it is worth asking about rather than assuming unsecured is the only path. Our personal loans page covers both.

What lenders assess

• Income and employment, and whether the repayment fits alongside your existing commitments including your mortgage
• Your credit file, including recent applications
• Existing debts, including credit card limits, which count whether used or not
• The purpose, which lenders ask about and record

Compare offers on the comparison rate rather than the headline rate, because fees vary more than rates do.

If part of the reason the budget is tight is other debts, that is worth addressing first rather than adding to. Our guide to debt consolidation covers when that helps and when it does not.

Where a broker fits

The useful work is deciding whether a personal loan is the right tool at all, and if it is, which structure and what term. If the honest answer is that your renovation belongs on the mortgage, that is worth hearing before you borrow at a higher rate than you needed to. Our personal loans page sets out what we arrange, Australia-wide.

This article is general information only and is not financial advice. It does not take account of your objectives, financial situation or needs. Building contract and deposit requirements are set by each state and territory.

Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging personal, car, boat and equipment finance Australia-wide.

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