Ways to finance home renovations

So, you've decided it's time to finally re-do your kitchen and, while you're at it, you could really do with air-conditioning. There are a few ways to pay for home renovations, and it really depends on the size of the project and your budget.

Ways to pay for a renovation:

  1. Unlock equity in your home
  2. Consider a personal home renovation loan (using a personal loan for home improvements)
  3. Consider a construction loan
  4. Refinance your home loan
  5. Redraw your extra home loan repayments
  6. Consider using a credit card
  7. Dip into your savings.

Unlock equity in your home

You may be able to increase your home loan limit if there's equity available.

By increasing your home loan, you can take advantage of keeping everything in the one place. Make sure you're comfortable with any changes to your loan repayments before you decide to increase your home loan amount, as well as any potential fees and charges.

How do I work out how much equity I have available?

You can estimate your equity by working out the difference between your home's market value and what you owe on your home loan.

Learn more about increasing your home loan.

Consider a personal home renovation loan (using a personal loan for home improvements)

Depending on the size of your renovation and your savings account, you might not need to borrow a lot of money. If you use a personal loan for home improvements, the minimum loan amount is usually lower than the minimum required to apply for a home loan increase or construction loan. There are generally two standard options when it comes to personal loans – secured and unsecured.

A secured loan lets you use an asset (like a car or motorcycle) as security for the loan. It often has a lower interest rate than an unsecured loan.

With no security needed, an unsecured personal loan can be a bit quicker and easier to set up. The minimum loan amount is often lower than secured personal loans and home loans, so if your renovations are only small this could be an option for you.

Learn more about our personal loans.

Consider a construction loan

Making any structural changes to your home? Before you knock out that wall, you might want to consider applying for a construction loan for your home renovation.

Construction loans work a little differently to regular home loans, as payments from the bank are progressively released to the builder as they complete various stages of the renovation. This helps to monitor the progress of the renovation and means you don’t have to worry about paying the builder directly. You make interest only repayments on your loan until the renovation is finished, which means you could have some extra cash handy during the construction period.

Once the renovation is complete, you can start making repayments on both the principal (loan amount) and interest, or you can continue to pay interest only for a period of up to five years.

Refinance your home loan

If you’re in the planning phase and not ready to start your project just yet, then it might be better to review your current home loan and see if you could save instead. It might be a good time to check if you’re getting the most out of your home loan and if there’s an opportunity to refinance. Find out what it means to refinance and the reasons to refinance your mortgage.

Redraw your extra home loan repayments

If you make mortgage repayments over and above the minimum required, this money builds up in surplus. If your home loan allows, you could take this money back out – also known as redraw.

Depending on the redraw facility, you could access surplus funds completely online or by submitting an application. It’s also good to keep in mind that once surplus funds are taken out of a home loan, you’ll be paying more in interest.

Learn more about a redraw facility.

Consider using a credit card

If you’re only planning to do minor updates to your home (like getting an alarm system or adding a fresh coat of paint) a credit card could be a convenient option for those smaller purchases. It allows you to pay purchases off over time and you could even repay in Easy Instalments.

If you plan to pay the balance of the credit card gradually, then a low rate credit card might suit your situation as it means you pay less interest. If you think you’ll pay the balance off straight away, you might want to consider a card with no annual fee or one that lets you earn points.

Learn more about our credit cards.

Dip into your savings

If you have a savings stash that you can dip into to finance your renovation, then you could save yourself on interest in the long run. However, there are a few things to consider.

Firstly, is your savings account offsetting your mortgage? If your savings are in an offset account, make sure you calculate the difference in mortgage repayments if you have less money offsetting your home loan.

Also, it can be handy to have an emergency fund for unexpected expenses, like additional renovation costs or a broken down car. It’s good to have money set aside, or a credit card in your pocket just in case.

We're here to help

Get in touch with a Home Lending Specialist, and they'll respond within one business day. You can talk on the phone, meet at a branch, or have a Mobile Lending Manager come to you.

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.