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Before you even pick up a hammer, you’ll want to do two things:
There are ways two common to finance your project:
Before we start assessing your costs, let’s cover off some renovation loan basics.
Renovating is one of the most popular reasons Australians take out a personal loan.
Home renovations are used to:
Finance your project:
Where to get finance:
Personal loan lender - fast approval, tailored products, competitive rates. Banks - slow approval, access to construction loans and mortgage equity
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.
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.
|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|
As you can see, costs vary wildly between projects, but it basically comes down to:
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:
Once you’ve settled on the cost of your project, you’ll want to add around 10% to the total costs.
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.
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:
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.
You can use the Money Matchmaker™ engine to compare your options for home renovation loans in less than 5 minutes.
See how much you can borrow and which lenders you qualify with, completely free of charge.
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:
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.
If you have a mortgage, you may be able to refinance to fund your renovations.
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.
|Type of loan||Interest Rate||Length||Monthly Payments||Total Interest Cost|
|Personal Loan||8%||5 years||$608||$6,497|
|Home Loan||3%||30 years||$126||$15,360|
Every lender has different eligibility criteria for a home renovation loan
The most basic qualifying criteria requires you to be:
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:
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.
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.
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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