A home renovation loan is any borrowing arranged specifically to pay for work on a property you already own. In Australia that usually means one of four things: a top-up on your existing mortgage, a construction loan released in stages, a line of credit secured against the home, or an unsecured personal loan. Which one suits you comes down to how much you need and whether the work is structural.
The rough dividing line is $100,000. Below it, most borrowers are better off topping up the mortgage. Above it, or where walls are moving, lenders want a construction loan and a builder’s fixed-price contract.
The four ways Australians fund a renovation
1. Topping up your existing home loan
If your property has risen in value or you have paid the loan down, you can often borrow that equity back at your normal home loan rate. It is the cheapest money on this list and the least paperwork. The lender revalues the property, lends up to 80% of that value without mortgage insurance, and the cash lands in your account in one go.
The limit is equity. On a home worth $1.1 million with a $600,000 loan, 80% of the value is $880,000, so there is $280,000 available before insurance enters the picture. Some lenders will go to 90% of the current value for non-structural work, with a premium attached.
2. A construction loan
For extensions, second storeys, knocking out load-bearing walls or anything needing council approval, lenders switch to a construction loan. The money is not handed over at settlement. It is released in progress payments against your builder’s schedule, and a valuer inspects at each stage before funds move.
A standard schedule looks like this:
- Deposit — 5%
- Base or slab — 15%
- Frame — 20%
- Lock-up — 25%
- Fit-out or fixing — 20%
- Practical completion — 15%
You pay interest only on what has been drawn, so the repayment climbs as the build progresses rather than starting at the full amount. The upside is real: on a $300,000 renovation the interest bill during a nine-month build is roughly half what it would be if the whole sum were drawn on day one. Our construction loan calculator shows the repayment at every stage.
The other advantage is valuation. A construction loan is assessed on the “as if complete” value, not today’s value, and some lenders will go to 95% of that figure. That is how people renovate without waiting years to build the equity first.
3. A line of credit
Useful when the work happens in phases over a couple of years — bathroom this year, kitchen next. You draw what you need, pay interest only on the balance, and the facility stays open. Rates sit above a standard variable loan, and the flexibility tempts people into treating it as spending money. It suits disciplined borrowers doing staged work and almost nobody else.
4. A personal loan
For jobs under about $50,000 with no equity to draw on. Rates run from roughly 7% to 15%, terms are five to seven years, and approval is fast. It is expensive money, but on a $25,000 bathroom the total interest may be less than the cost of a full refinance and valuation on the mortgage.
What lenders will actually lend you
Three numbers decide the size of your renovation loan.
- Non-structural work — up to 90% of the property’s current value at most lenders. Paint, floors, a kitchen swap, a bathroom that stays where it is.
- Structural work — up to 95% of the “as if complete” valuation, provided you have council approval and a licensed builder on a fixed-price contract.
- With a family guarantee — up to 105% at some lenders, which covers the build and the costs around it. Our guide to guarantor home loans explains how that works.
Owner-builders are the exception. If you are managing the job yourself, expect 60% to 80% of the completed value at best, and a smaller field of lenders. Your own labour carries no value in the assessment.
Why the building contract decides your approval
Borrowers assume the lender is judging them. On a renovation, the lender is judging the builder.
A fixed-price contract from a licensed builder, with council approval attached and a clear schedule of works, moves through credit quickly. A cost-plus arrangement, a series of separate trade quotes, or an owner-builder permit slows everything down and lowers the amount on offer, because the lender has no certainty about the final bill.
“I see the same thing kill renovation deals over and over — three separate trade quotes and no head contract. Put one licensed builder on a fixed-price contract for the whole job and the lender that said no last week will look at it again this week.”
— Mansour Soltani, Commercial Broker
Buying or building premises for your own business? That is commercial lending, not a home renovation loan, and it is assessed on the business and the lease rather than on your salary. Send us the details and we will match you with a commercial finance broker.
Costs people forget to borrow for
Budgets are built around the builder’s quote and then blown apart by everything sitting outside it:
- Council and development application fees, commonly $2,000 to $8,000.
- Architect or draftsperson drawings, often 5% to 10% of the build cost.
- Engineering reports for structural work.
- Progress inspection valuations, usually charged per stage.
- Rent somewhere else if the house becomes unliveable.
- A contingency. Ten to fifteen per cent of the build is the figure builders themselves use.
Borrow for the contingency at the start. Going back to a lender mid-build for another $40,000 means a fresh application, a fresh valuation, and a stalled site while it is assessed.
Does the renovation add what it costs?
Kitchens and bathrooms return the most reliably. Adding a bedroom or a second bathroom usually lifts value by more than the spend in capital city suburbs. Pools, high-end fit-outs and anything that pushes the home well above the street’s ceiling price rarely return the money.
The bank’s valuer will not necessarily agree with the number in your head. If the renovation is part of a plan to draw equity later, get an informal appraisal from a local agent before you commit, not after.
If you are refinancing to fund the work, the loan you move to matters as much as the money you free up — we cover that in refinancing for renovations. And if the borrowing limit is the obstacle rather than the equity, how to increase your borrowing capacity is the place to start.
Getting it right the first time
Renovation lending is one of the few areas where lender policy varies wildly. One bank will fund an owner-builder to 80%, the one next door stops at 60%. One accepts staged trade quotes under $150,000, another demands a head contract on any structural job. Rate is not the deciding factor here — policy is.
A broker who writes construction loans regularly will know which lender fits your job before you apply, which saves a declined application sitting on your credit file.
Match me with a mortgage broker, or compare the top brokers in your city.
Frequently asked questions
1. Can I get a renovation loan with no equity in my home?
Yes, but the options narrow. A personal loan needs no equity at all. A construction loan assessed on the completed value can work if the renovation itself creates the equity. A family guarantee covers the gap where neither applies.
2. How long does a renovation loan take to approve?
A mortgage top-up can settle in two to three weeks. A construction loan takes four to six weeks, because the lender has to assess the building contract, the plans and the council approval alongside your finances.
3. Do I need council approval before I apply?
For structural work, yes — lenders will not release construction funds without it. Cosmetic work generally needs no approval, and no lender will ask for one.
4. Can I do the work myself?
You can, with an owner-builder permit, but lenders cap the loan at 60% to 80% of the completed value and fewer of them will take it on. You also cannot claim your own labour as part of the build cost.
5. What happens if the renovation costs more than expected?
You fund the difference yourself or apply for a variation, which means a new assessment and a new valuation. This is why a contingency of 10% to 15% is built into the loan at the start rather than hoped for later.
6. Is a renovation loan cheaper than a personal loan?
Almost always. A loan secured against your home sits at mortgage rates, currently well under half what an unsecured personal loan charges. The trade-off is that the debt is spread over 25 or 30 years, so the total interest can still be higher unless you pay it down faster.