How to finance your renovation

There are a number of ways you can finance your renovation project, depending on the size of the project and your project budget.

Our guide to of some of the best finance solutions for renovators is designed to help you establish which finance option is best suited to your renovation project. If you do not have savings to use on your project you will to look at the funding options available, a good first step is to gain an understanding of what each of how each of the funding options work.


1. Redraw on your Home Loan

If you have made some extra repayments on your home loan and have a redraw facility you could access this extra money quickly and possibly without incurring any fees, depending on your home loan provider. Many redraw facilities require no paper work or approval from your lender, you can simply withdraw the available money from your account online.


2. Personal Loan

Most lenders allow borrowers to use unsecured Personal Loans for any purpose they wish, including Home Renovation Projects. Loans from $3,000 to $55,000 are available with terms from 1 - 7 years, over which the loan can be repaid. You can choose between a fixed or variable rate of interest and many personal loans also allow extra repayments and early repayment of the loan.

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3. Personal Line of Credit

A Personal Line of Credit or an over-draft, is an unsecured credit facility attached to your everyday transaction account that works like a credit card but generally features a lower interest rate.

A Personal Line of Credit is different from a Personal Loan because it allows you to establish pre-approved credit against your savings, this credit then acts as support to your regular income, as and when you need it. A key benefit of a Personal Line of Credit is that it gives you access to funds without having to pay interest on any unused amounts.


4. Home Equity Loan

A Home Equity Loan or Line Of Credit is designed o allow you to access any equity you have in your property. This equity is the difference between the amount you owe on your mortgage and the amount your property is worth, as decided by an independent valuation. For example, if your home is valued at $750,000 and you have $350,000 left on your mortgage, that means you have $400,000 in equity. Most lenders will calculate 80% of your home value and subtract your mortgage balance to figure out how much you can borrow. In our example, 80% of the home’s value would be $600,000. Take away $350,000 and you could borrow up to $250,000.

A home equity loan, is a revolving line of credit with a variable interest rate that offers you increased flexibility and enables you to choose how often and how much to borrow against the equity in the house, whilst the lender sets the initial limit to the loan using similar criteria to a regular home loan.


Selecting the Best Home Renovation Loan

Before you get started on your search, remember to evaluate whether the renovations you are planning will be worth it, especially if you don’t plan on staying in your current house in the long term.

If the project makes sense in terms of where you see yourself living in the next few years, take a careful look at how you want to finance it. Borrowing against your home equity will generally be your cheapest option in terms of interest charges, as long as you have sufficient equity and are 100% confident you won’t put your home at risk by missing payments. But in certain other cases, personal home improvement loans make sense, particularly where you don’t have sufficient equity in your house.