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Loan amount
| Product | Interest rate | Comparison rate | Monthly repayment | Key features | Compare Now |
|---|---|---|---|---|---|
 Loans.com.au Variable Bare Home Loan 90% LVR | 5.79% p.a. variable | 5.83% p.a. | $2,931 Principal & Interest | Max LVR 90% Redraw | |
 UBank Flex Home Loan Variable (Owner Occupied) | 5.84% p.a. variable | 6.08% p.a. | $2,947 Principal & Interest | Max LVR 60% Offset Redraw | |
 in1bank in1home | 5.08% p.a. variable | 5.13% p.a. | $2,709 Principal & Interest | Max LVR 50% Redraw | |
in1bank in1offsethome | 5.18% p.a. variable | 5.62% p.a. | $2,739 Principal & Interest | Max LVR 50% Offset Redraw | |
 Laboratories Credit Union Simple Home Loan Owner Occupied | 5.44% p.a. variable | 5.46% p.a. | $2,820 Principal & Interest | Max LVR 95% App Fee $200 | |
 Pacific Mortgage Group Owner Occupied Variable Home Loan | 5.59% p.a. variable | 5.59% p.a. | $2,867 Principal & Interest | Max LVR 80% Redraw | |
 Virgin Money Lite Home Loan Variable | 5.59% p.a. variable | 5.61% p.a. | $2,867 Principal & Interest | Max LVR 60% Redraw Split Loan | |
 Gateway Bank Green Plus Home Loan | 5.60% p.a. variable | 5.89% p.a. | $2,870 Principal & Interest | Max LVR 80% Offset Redraw | |
 People First Bank Basic Variable Home Loan | 5.64% p.a. variable | 5.65% p.a. | $2,883 Principal & Interest | Max LVR 70% Offset Redraw | |
 People's Choice Credit Union Basic Variable Home Loan | 5.64% p.a. variable | 5.65% p.a. | $2,883 Principal & Interest | Max LVR 70% Offset Redraw | |
 RACQ Bank Fair Dinkum Home Loan | 5.64% p.a. variable | 5.65% p.a. | $2,883 Principal & Interest | Max LVR 60% Split Loan | |
Gateway Bank Low Rate Essentials | 5.64% p.a. variable | 5.66% p.a. | $2,883 Principal & Interest | Max LVR 50% Redraw | |
Gateway Bank Low Rate Essentials | 5.64% p.a. variable | 5.66% p.a. | $2,883 Principal & Interest | Max LVR 60% Redraw | |
 Heritage Bank Discount Variable OO P&I | 5.64% p.a. variable | 5.66% p.a. | $2,883 Principal & Interest | Max LVR 70% Redraw Split Loan | |
 Police Credit Union Low Rate Home Loan Special Offer | 5.64% p.a. variable | 5.67% p.a. | $2,883 Principal & Interest | Max LVR 80% Offset Redraw | |
 Australian Mutual Bank GumLeaf Basic Variable Rate Owner Occupied | 5.64% p.a. variable | 5.71% p.a. | $2,883 Principal & Interest | Max LVR 60% Redraw App Fee $250 | |
 Freedom Lend FREEDOM VARIABLE | 5.64% p.a. variable | 6.03% p.a. | $2,883 Principal & Interest | Max LVR 60% Offset Redraw | |
 Horizon Bank Home Sweet Home Loan | 5.64% p.a. variable | 6.34% p.a. | $2,883 Principal & Interest | Max LVR 70% Offset Redraw | |
 The Mac Credit Union Discounted Basic Variable Home Loan | 5.67% p.a. variable | 7.33% p.a. | $2,893 Principal & Interest or Interest only | Max LVR 80% Redraw App Fee $400 | |
 Bank of China Discount Home Loan - Australian Income | 5.68% p.a. variable | 5.89% p.a. | $2,896 Principal & Interest | Max LVR 80% Redraw | |
Bank of China Discount Plus Home Loan - Australian Income | 5.68% p.a. variable | 6.07% p.a. | $2,896 Principal & Interest | Max LVR 80% Offset Redraw | |
 Unloan Refinance | 5.69% p.a. variable | 5.60% p.a. | $2,899 Principal & Interest | Max LVR 80% Redraw |
See how much equity you may be able to draw down for renos, based on your current loan balance and property value.
If you’re considering a renovation loan for a home upgrade, refinancing your existing home loan can be a smart way to do it. Essentially you’re ‘topping up’ your loan to borrow the extra money to finance the reno.
It’s generally only possible if you have enough equity in your property, but most borrowers who have had their loan for a few years should be in a position to draw down some equity.
Equity just means the difference between your loan amount and what your property is worth. For renovations, most lenders will allow you to extend your total loan balance to up to 80% of your property’s current value.
So let’s say your current home loan balance is $700,000 and your property is worth $1,000,000. You may be able to cash out an additional $100,000, bringing your new loan total to $800,000, or 80% of the property’s current value. The extra $100,000 becomes your renovation loan to finance your home improvements.
Note, it may be possible to borrow more than 80% of your property’s value in some cases. But if your loan-to-value ratio (LVR) goes above 80%, you may need to pay for lenders mortgage insurance, which would significantly add to the cost of your reno.
On average customers who refinance their mortgage through Money.com.au have around $345,000 in usable equity that they can potentially access for renovations or other purposes.
There are two main ways you could structure your home renovation loan once the lender has agreed to lend you the extra funds.
This involves a straightforward increase to your existing home loan with the reno funds added to your balance.
Separate the extra funds into a dedicated renovation home loan account, with interest-only repayments.
Money.com.au Mortgage Broker, Nick Burgess, explains that the separate renovation loan splite is what most borrowers choose once he explains how this works and the flexibility it offers.
“When they come to us, a lot of borrowers aren't aware that they can create this separate loan for the renovations and set it up with interest-only repayments,” says Nick.
“The benefit, particularly for bigger renos, is that the funds can just sit there until the homeowner is ready to actually start building. Because it’s interest-only, there are no repayments on that debt until they use the cash and interest starts accruing."
Nick Burgess, Money.com.au Senior Mortgage Broker
“The reason this works well is a lot of borrowers don't know when exactly they're going to start the renovations. They might be trying to find a builder and the start date could be six months away.
In the meantime, the funds for the reno just sit there ready to go with no repayments required. If, on the other hand, the renovation loan was on principal and interest, as soon as that money hits the borrower’s account, they've got a minimum repayment to make to the bank.
That means the budget available for the reno is going to keep dropping down with each repayment. So if they're budgeting a certain amount for the reno, that may not be the best way to structure the loan.”
Nick Burgess, Money.com.au Senior Mortgage Broker
Let’s use the example of that extra $100,000 borrowed for renovations, where the building work doesn’t commence for six months. The renovation loan funds go into a separate interest-only loan account with the balance fully offset using an offset account or redraw facility until the building starts. Because of this, the borrower doesn’t need to pay anything until the funds are drawn down.
In an alternative scenario, had those funds simply been added to the borrower’s existing balance (with principal and interest repayments), their monthly loan repayments would have increased by $644 per month*, or an extra $3,864 over six months. That amount would include $3,000 in interest payable on the renovation funds before any work is done, with $864 of the loan paid back.
Starting to repay the extra renovation loan funds from day one is not ideal for two reasons:
If your loan doesn’t have an offset account or redraw, you could always stash the money in a high interest savings account until you need it to pay your builder, but the separate loan is often a cleaner solution. That said, it’s worth discussing this strategy with a mortgage broker and how it might apply to your situation.
*Assumes a 6% p.a. interest rate and 25-year remaining loan term.
Money.com.au’s Editor, Sean Callery, explains how he refinanced his mortgage to fund a home renovation project.
“We had two bathrooms badly in need of a complete remodel and some equity in our property to play with, so we decided to refinance our home loan and cash out the money to pay for the work.
Here’s what we did step by step:
Et voila! Before and after…
Sean Callery, Editor
"To throw a slight spanner in the works early on, one of the builders we spoke to insisted that due to the high demand for their services, they would only quote on jobs if there was renovation finance approved and ready to go.
This was our preferred builder, so I explained that we needed to establish our budget before approaching our lender and thankfully they were flexible. But it’s a good reminder that there can be a chicken-and-egg scenario in terms of which should come first: establishing the budget for the renovation by getting builder quotes, or establishing the budget for the renovation by seeing what a lender will give you.
The reality is some builders won’t give a quote without finance, and some lenders won’t give finance without a quote."
Sean Callery, Editor
To qualify for a renovation refinance, these are the main criteria that apply across Money.com.au’s panel of lenders:
You’ll need to have enough usable equity in your home to borrow against. For most lenders, your total loan balance (including the extra renovation loan funds) can be a maximum of 80% of your property’s current value. In other words, your current loan will need to be less than 80% in order for you to be able to borrow more.
To assess your borrowing capacity, you’ll need to have your property valued by the lender. In a lot of cases, this involves a simple ’desktop’ valuation where the lender uses online resources to estimate your property’s value. For more complex applications a physical inspection of your property may be ordered.
The lender will want to know if the renovations are structural or non-structural. For non-structural upgrades (e.g. remodelling a kitchen or adding a pool), a simple loan top-up may be all that’s needed. If it’s a structural upgrade (e.g. adding an extra floor), you’ll likely need a construction loan instead.
The lender will want to know if you’re doing the work yourself (or project managing it yourself) or working with a separate builder or project manager. In most instances, lenders are reluctant to lend to owner-builders for renovations as they view this as being riskier.
The lender will also assess your current income, expenses and other debts to ensure that you can service (i.e. afford) the higher repayments on the loan with the extra reno funds added to it.
Nick Burgess, Money.com.au Senior Mortgage Broker
"A client came to us looking for help with a $60,000 cash out for a reno after his original lender said no. The lender was undervaluing his property based on an automated valuation and he was stuck. So I approached three other lenders on the client’s behalf and ordered valuations on the property. The valuations came back higher than what the original lender was quoting, putting my client in a much stronger equity position and we were able to get his renovation refinance approved."
Nick Burgess, Money.com.au Senior Mortgage Broker
You can’t use a renovation loan for structural upgrades to your home, such as adding an extension or lifting up and adding a floor. But aside from that, most lenders do not have restrictions on what the loan funds can be used for. If you’re approved for a loan top-up, the funds are generally simply paid to you and it’s up to you how to spend them.
For a straightforward cash-out refinance for renovations, the lender won’t ask to see a builder quote or plans for the building work. If you’re refinancing with a mortgage broker, the lender will simply rely on the broker’s notes regarding the renovation plans when assessing the application.
However, for larger projects involving a construction loan, the lender will want to see detailed quotes, building plans and council approval.
A borrower can typically qualify for a ‘green upgrade’ home loan if they already own a property and are making energy-efficient upgrades to it, like adding solar panels, batteries, insulation or efficient heating and cooling. Most lenders only offer these products if you already have your home loan with them, or become a customer by switching across.
ING and CommBank are among the lenders offering green upgrade home loans in Australia. They generally come with lower rates versus a standard home loan.
These loans are usually offered as a top-up or additional borrowing on an existing home loan, so you’ll need to have enough equity in your property to qualify.
Renovation loans and construction loans are both designed to fund property improvements, but they’re structured quite differently because of the level of risk involved.
A renovation loan is typically used to upgrade or extend an existing home, where the property already has a baseline value. In contrast, a construction loan is used to build a new home (or complete a knockdown rebuild or major structural renovation), where the final value depends entirely on the build being completed.
Because of this, construction loans are more tightly controlled. Lenders usually release funds in stages and require a licensed builder and detailed contracts. Renovation loans are simpler, with funds provided upfront via top-up to an existing home loan and more flexibility around how the work is carried out. The table below shows the key differences side by side:
| Renovation loan | Construction loan | |
|---|---|---|
Purpose | Upgrade or improve an existing property | Build a new home, major knockdown/rebuild or structural reno |
Loan structure | Lump sum or loan top-up | Progressive drawdowns with funds released in stages as build progresses |
Builder requirement | No specific requirement | Requires a licensed builder |
Documentation | Usually none required | Fixed-price contract, plans, council approvals |
Complexity | Simpler, faster approval | More complex with inspections at each stage |
Potentially, but it’s unlikely to make a significant difference in the short term as lenders tier interest rates based on the borrower’s loan-to-value ratio and any increase to your property will be at least partially cancelled out by the increase in your loan size.
The best way to save money on your renovation finance is to shop for the cheapest home loan rates and fees. Refinance costs can be high depending on the situation, so applying for the renovation loan with your current lender can be a cost saver. But if switching means you can qualify for a lower rate, it’s often worth the upfront cost to switch.
Beyond that, the right loan structure, such as interest-only repayment until the build is complete, can help you save money. Chat to a mortgage broker about this to ensure it suits your needs.
Once the building work is complete, paying extra on your loan whenever you have cash to spare will help you lower your interest costs.
They’re paid out as part of the refinance and closed. You’ll then focus on a single home loan repayment, so be careful not to re-use cleared credit cards or re-borrow.
Once your other debts are rolled into your mortgage, your home becomes the security for the entire loan. If you fall behind on repayments and can’t catch up, the lender can reclaim and sell your property.
But this doesn’t happen overnight. Lenders must follow strict processes and will usually offer hardship options or repayment plans first if you’re struggling. Seeking help early greatly reduces the risk of repossession.
Yes it’s possible to refinance an investment home loan to cash out funds for a renovation. It’s typically less common on investment loans, however, as investors tend to be less likely to do non-structural renovations on a property. More often than not, investors focus on structural renovations that will help to add significant value or improve the rental yield on their property. What are some other ways to finance a home renovation?
If you have been paying back extra on your home loan over time, it’s worth seeing how much funds you have available to redraw (if your loan offers this). You may be able to partially fund your reno this way rather than borrowing additional money. The same goes if you have money in your offset account, it may be easiest to use these funds instead of borrowing more.
For smaller renos, you could also consider a personal loan to cover the cost. Personal loan rates are generally higher than home loan rates, but the approval process is usually simpler, meaning you may be able to get your hands on the money sooner compared to applying for a home loan top-up.
Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.
Isabella Visser is a Finance Writer with Money.com.au. With her experience in journalism and writing content across multiple platforms she makes finance simpler for readers by creating insightful and engaging content.
