Planning how you will renovate your property may be the fun part of a home improvement - deciding how you will pay for it all is just as important.

Paying for your renovations with cash is the cheapest form of funding. But unless you’ve managed to tuck plenty of savings away, you may need to borrow to fund your home improvements. There are several options to choose from.

Tap into home equity

If you already have a home loan you can choose to access the equity in your home to fund a renovation.

‘Home equity’ simply refers to the difference between your home’s market value and how much you owe on your home loan. If your home has increased in value since you bought it, or if you’ve been paying off your loan for some time, chances are you’ve built up some home equity.

Working out your home equity

Let’s say for instance, that your home is worth $600,000 and you have $250,000 remaining on your home loan. In this instance you have home equity worth $350,000. This is a valuable financial resource as your equity can be used as security to finance your renovation.

There are a number of ways to tap into your home equity. You may be able to use a redraw facility to withdraw any extra payments made on the loan. If you are happy with your current loan and lender, it may be possible to fund your renovations by extending your existing loan.

Or you can choose to fund the improvements by taking out a new loan altogether. There are pros and cons with taking out a new loan. The following table offers a summary of these:

Funding renovations through your home or investment loan



Staying with your current loan

  • You have a current track record with your lender
  • There may be less paperwork involved as you are only extending your loan
  • There may be fewer of the costs associated with refinancing like a lender’s discharge fees or application fees on a new loan
  • You may be able to draw on equity in their property to cover the planned renovation costs
  • Your present loan may not offer a competitive rate
  • Your current loan may not have features that you are now in a position to use
  • Your current loan may be inappropriate for large scale renovations where the work occurs over a period of time
  • You may need to pay LMI if you borrow 80% or more of your home’s value

Refinancing to a new lender

  • Refinancing may be an opportunity to secure a more competitively priced loan
  • Your may be able to access additional features not available with your current home loan
  • A different type of loan – like a line of credit loan or construction loan, may give you a more appropriate financing option
  • Investors considering the purchase of a property to renovate may be able to take a loan that also provides funds for the planned improvements  
  • You may have to pay upfront fees on the new loan and/or discharge fees on the old loan
  • You could face the cost of Lender’s Mortgage Insurance (LMI) if you need to borrow 80% or more of your home’s value

An opportunity to secure a better deal

The main point is that any major life event including a renovation project is always a useful trigger to review your home loan. Even if you are satisfied with your current loan it is worth taking a look at what is available through other lenders as you may be able to secure a more competitively priced loan – or better loan features.

A great starting point to discover if you could get a better deal with a different loan is to speak with an expert Aussie Mortgage Broker.

Taking out a new loan

For property owners planning renovations, it can be worth considering a different type of loan from the one you may have at present.

Line of credit loan

A line of credit loan is a very handy option for renovators. It works slightly differently from a traditional home loan. You can access credit up to an approved limit but instead of receiving the loan funds in one lump sum, you have the freedom to draw down the money when it’s needed. Interest is only charged on the funds you use, and you can access the funds at any time through a normal transaction account or credit card via ATMs and EFTPOS.

The flipside is that it takes discipline not to dip into a line of credit loan for other purposes. You also need to be very committed about repaying the loan principal as well as the interest

Personal loan

Whether you are upgrading a kitchen or bathroom, adding a deck, putting in a pool, improving the garden or buying new furnishings, a personal loan could help.

The fixed loan principal and set payment term provides a controlled means of repaying the debt, and the scheduled payments allow for easy budgeting.

Accessing equity by topping-up your mortgage is often the first place people look when they need to finance home improvements. But this often takes time and may have significant costs involved.

Although the interest rate may be higher, short term debt should be compared with long term debt. Paying off a personal loan over a shorter period of time could mean that you may pay less interest in the long run. Additionally, you may not need to provide trade quotes and documentary evidence with a personal loan, which is handy if a few extras need to be bundled into the loan, like a new TV or a holiday.

Applying for an Aussie Personal Loan is easy and takes less than 15 minutes with the funds usually available within 2 business days after approval.

Take a look at Aussie’s online personal loan calculator to see what the monthly principal and interest repayments would be for the loan size you need. Or to find out more about an Aussie Personal Loan click here.

Short-term credit

If your renovation project is small, a low interest credit card can be a useful source of funds to purchase materials. Managed wisely, this can be a very cost effective source of funding and the advantage of a credit card is that it lets you buy materials online or over the phone. It is important to pay the card off in full each month to avoid interest charges

Continue to information about preparing your paperwork.

It’s never too early to chat to a broker.

Talk to an Aussie broker