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Renovations can be expensive. Planning is important and ensuring you stay on budget.

Written by

Shaun McGowan

Before you even pick up a hammer, you’ll want to do two things:

  • Estimate the costs of your project
  • Make sure you have the finance available to fund it

There are ways two common to finance your project:

  • Personal loan: generally used for smaller renovations under $50,000.
  • Construction loan: generally used for large renovations over $150,000 in value.

Before we start assessing your costs, let’s cover off some renovation loan basics.

Everything you need to know about renovation loans in 60 seconds

Renovating is one of the most popular reasons Australians take out a personal loan.

Home renovations are used to

  • Increase the value of your property
  • Adapt the space for a new baby, looking after an elderly relative, or for retirement
  • Add cosmetic features, like a swimming pool or outdoor deck

Finance your project

  • Personal loan - loans for smaller renovations you can do with little assistance.
  • Construction loan - larger loans usually paid in stages across the project.

Where to get finance

  • Personal loan lender - fast approval, tailored products, competitive rates.
  • Banks - slow approval, access to construction loans and mortgage equity

Important Tips

  • Get multiple quotes on your project and add 10% as a buffer
  • Avoid expensive, fragile materials where possible
  • Understand your project fully before applying for a loan.

Keep this in mind as we look at estimating the project in the next section.

How do home renovation loans work

A home renovation loan will help you avoid adding to your existing mortgage and incurring additional interest over the life of it.

It can be used for your construction or DIY plans such as adding an extra room or renovating your kitchen, but many also use home renovation loans to fit out their home with new furniture or appliances.

You can borrow as little as $2,000 or as much as $100,000 for use as you see fit around your home.

You can choose a loan term that suits you too, not 30 years like your mortgage, but anywhere from 1-7 years which means a lot less in interest.

Construction home loans

Estimate your home renovations

Now it’s time to estimate your project.

The bad news is that it might cost more than initially expected.

The good news is that everything gets much easier after this point.

Let’s get started with an overview of average renovation costs from Aussie lender, SocietyOne.

Loan overdrafts

Renovating on a budget - what can you afford?

AreaAverage PriceCosts

Kitchen

$10,000 - $45,000

Labour, appliances, fittings, flooring, structural changes

Bathroom

$10,000 - $35,000

Labour, tiling, fixtures

Bedroom

$2,000 - $35,000

Labour, structural changes

Living Room

$10,000 - $15,000

Labour, flooring, furniture

Outdoor

$2,000 - $10,000

Labour, landscaping, structural changes

Source: SocietyOne

As you can see, costs vary wildly between projects, but it basically comes down to:

  • The complexity of the job
  • The cost of materials
  • The number of people you have to pay and for how long

If you’re planning on putting in some new tiles and a bath, or build a deck for summer, your project will be pretty simple to scope.

If you’re planning to knock down some walls or build a second storey, then you’ll definitely want to get in a professional to keep you within budget.

Two things to keep in mind at this point:

  • Be realistic about the cost of your renovations and what you can afford
  • Get multiple quotes on the total project cost before committing to a renovation loan

Once you’ve settled on the cost of your project, you’ll want to add around 10% to the total costs.

Why?

Because life happens sometimes. The best project plan in the world can’t account for an unexpected pandemic, or delayed shipments, broken materials, and any other setback.

Adding 10% gives a little peace of mind that one hurdle doesn’t mean doom for a project.

Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: Properly scoping your renovation project and getting comparable quotes from multiple contractors before committing to a loan is the first step toward keeping your renovations within budget

Evaluating your project should also dictate the type of renovation loan you’ll need:

Find the best deal on home renovation loans

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What are home improvement loans

Home improvement or home renovation loans are personal loans that you can take out to do anything you need to around your home.

You can borrow from $2,000 to $100,000 and over shorter loan terms such as 1 - 7 years.

Unlike construction home loans you don't need detailed plans and a builder contract. You just need to know how much you want to borrow and then you're able to apply.

Renovating with a personal loan

Best used for: home renovations under $50,000

Personal loans can be a simple, straightforward way to fund renovations.

Home renovation personal loans have shorter terms than a mortgage or larger loan, with terms generally offered between three and seven years.

Borrowing limits range from $2,000 to $75,000, and they may also have higher interest rates than home loans and construction loans.

Find your personal loan with Money Matchmaker

Pros

  • Quick, easy application
  • Simple loan structure
  • May have low fees

You can use the Money Matchmaker™ engine to compare your options for home renovation loans in less than 60 seconds.

See how much you can borrow and which lenders you qualify with, completely free of charge.

Renovation Loan Rate Comparison

Renovation loan amount5% interest7.5% interest10% interest

$10,000

$188.71

$200.38

$212.47

$20,000

$377.42

$400.76

$424.94

$30,000

$566.14

$601.14

$637.41

$40,000

$754.85

$801.52

$849.88

$50,000

$943.56

$1,001.90

$1,062.35

$60,000

$1,132.27

$1,202.28

$1,274.82

$70,000

$1,320.99

$1,402.66

$1,487.29

$80,000

$1,509.70

$1,603.04

$1,699.76

$90,000

$1,698.41

$1,803.42

$1,912.23

Comparison renovation loan repayment examples are calculated using monthly repayments with a fixed interest rate on a 5-year term. They do not include any fees that may be charged by a lender in addition to interest.

Using a construction loan for renovations

Best used for: Large renovations over $150,000

Construction loans cover expenses when building or substantially renovating your home.

They’re structured a little differently than regular home loans to make the process as simple as possible.

You’ll usually need a signed all-inclusive contract with a builder, including quotes and plans.

After your lender approves your application, they will generally pay out funds in stages:

  • Payments are made as needed to complete the construction.
  • These payments will often be made directly to your builder.
Traditional bank loans

Repayments

The good news about staged payments is that you’ll generally just cover interest charges.

This means your repayments will be lower while the project is underway, and once it’s complete you’ll return to normal repayments of principal and interest.

Pros

  • Designed specifically for large renovations
  • High loan limit ideal for large renovations
  • Interest-only during the construction period

Using your mortgage equity to renovate

If you have a mortgage, you may be able to refinance to fund your renovations.

Using equity

  • Adds the borrowing amount to your existing loan
  • Interest rates will be lower than using a new loan
  • Won’t require a new application from scratch
  • The amount can be spread out over 30 years instead of a maximum of 7 or 8.

From a cost perspective, this means your ongoing repayments will be significantly lower, but you’ll pay significantly more interest by the end of your term.

You can see this illustrated in the example below, and it’s something to keep in mind when considering short-term and long-term costs.

$30,000 personal loan vs home loan renovations cost comparison

Type of loanInterest RateLengthMonthly PaymentsTotal Interest Cost

Personal Loan

8%

5 years

$608

$6,497

Home Loan

3%

30 years

$126

$15,360

How to qualify and apply

Every lender has different eligibility criteria for a home renovation loan

The most basic qualifying criteria requires you to be:

  • Over the age of 18; and
  • An Australian citizen or permanent resident; and
  • Employed, with a regular source of income that you can demonstrate

The most important factor in applying for a home renovation loan is to demonstrate your ability to repay the full loan amount to your lender.

If you meet the basic eligibility for a personal loan, you will then need to compare lenders and assess their individual approval criteria.

To get apply for a home renovation loan you will need to:

  • Submit an application to a lender
  • Meet the lender’s approval criteria
  • Sign a loan contract and agree to the terms of the loan

You will need to provide personal identification and financial documents (usually your bank statements or recent payslips), as lenders will need to assess your financial stability and determine if you can service the loan amount

How to qualify for a loan in Australia
Australia's Money Matchmaker matching you with your best loans across multiple lenders
Money Tip: It’s a good idea to leave an extra 10% in the budget just in case your renovations end up costing more than you expect.

Here are the most popular questions people are asking about home renovation loans

Check to see if you qualify for any of the government’s current grants for homebuilders and homeowners. You can find more information about available grants on the Australian Treasury website.

Construction loans may be suited to large, high-cost renovations, while personal loans may be better for smaller, low-cost renovations.

Yes, you may be able to get a construction loan to renovate your home. However, you’ll need to supply your lender with a deposit of 5% or more, a signed building contract and quotes to as well as meeting their credit criteria.

In some cases, you may be able to open a line of credit without refinancing your home loan. Speak to your lender to find out more.

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $10,000 over 3 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.