Financing a home renovation with a personal loan

What is a home renovation loan?

A renovation loan is much the same as any other personal loan, but instead of paying for a new car, a medical procedure or a holiday, it’s specifically used to improve your home.

Home renovation loans allow you to borrow a lump sum of money, paid back over a set term along with interest and any additional fees. 

Let’s take a closer look.

How much do home renovations cost?

It depends on your plans. Home renovations can cost you anywhere from a couple of thousand for a quick paint job, to the million-dollar projects you’ll see on Grand Designs. 

A recent Domain article noted that costs have gone up for renovations in recent years, though not due to materials but labour costs. The cost of tradespeople rose by 4% between 2023 and 2024, according to the Housing Industry Association.

Data from Suncorp (2022) shows that the average spend on home renovations also varies from state to state. The national average is roughly $63,118, while some states spend much more than others on home improvement. Consider these figures:

• VIC: $71,067

• TAS: $67,416

• NSW: $66,609

• QLD: $60,560

• ACT: $58,466

• WA: $54,377

Of course, your costs will depend on the size and scale of your renovation. Here are some common uses for renovation loans to help you weigh their suitability to your project:

• Swimming pools
• Kitchen renovations
• Bathroom remodelling
• Solar panel installation
• Extensions
• Added storage
• Landscaping
• General repairs.

How much can I borrow for my renovation?

There’s no way to answer this for everyone, but a few factors will determine how much you can borrow.

These include: 

How your personal finances are assessed by the lender.
How much your choice of lender is willing to lend. (Most cap unsecured loans at around $50,000 to $60,000. Secured loans can come with bigger amounts of up to around $100,000).

What type of renovation you’re doing. This will help determine which loan is most suitable. A finance expert should be able to advise you if you’re unsure. 

Let's run through a quick example and use the Mozo calculator to help illustrate how much you might need.

Home renovation type: Bathroom revamp, new sink, shower and tiles.

Proposed cost: $30,000

Savings designated: $8,000

Renovation loan needed: $22,000

Borrowed amount: $22,000

Interest rate offered: 10.35% p.a.

Loan term: 5 years

Monthly repayments: $471

Total interest paid: $2,674

Total loan cost: $24,674

Keep in mind that a lower interest rate can help bring down your costs, so it’s worth shopping around. Also, while a longer loan term can bring down your immediate monthly repayments, it will usually increase your total repayment amount.  

💡Smart tip: It’s quite common for homeowners to use extra money paid into their home loan to help fund a renovation. To do so, your home loan needs a redraw facility, which gives you access to this extra money. Just remember, if you choose to withdraw money from your available redraw, your home loan balance, repayments and the time it takes to pay off your loan will all increase.

How to choose a home renovation loan?

There are a few things to focus on when deciding on a renovation loan, including the interest rate, fees and the loan term. Let’s break these down further.

• Interest rate: Interest can be fixed or variable and it’s worth noting the impact of interest on your total amount repaid. Keep an eye on the comparison rate*, which factors in the interest rate and the fees you’ll be charged with a specific loan. This usually gives you a more accurate idea of the full cost of the loan. 

• Fees: All loans have fees attached, and you can save a lot by watching out for loans with hidden fees. You will almost always find an application fee for a loan, but there can also be fees for late payments, early payments and redraws.

• Loan term: Most personal loans last between 1-7 years, and this impacts how much interest you will pay. The shorter the length of your loan, the less interest you’ll pay - but the more your regular repayments will be.

• Extras: Being able to make extra repayments or having a flexible repayment schedule can help pay off your loan earlier and save on interest. Keep in mind that some loans have early break costs, which might make this less attractive. 

What types of home renovation loans are there?

Several factors will help determine the kind of renovation loan you’re selecting. Let’s run through them briefly below:

Fixed rates: These rates stay the same for the life of your loan, making it easier to budget for. This is an attractive option if you're worried about a rate hike down the track, but tend to be higher and can have more rigid loan conditions alongside them.

Variable rates: These rates are subject to change over the course of the loan. This can mean they’re generally lower and can come with more flexible features (like early repayments and redraws). But interest rates can also rise over time. 

Secured: These loans can have lower interest rates, but they require an asset as collateral. This means a car, a property, or some other valuable possession is put up against the loan, and if you default, this asset can be repossessed by the lender.

Unsecured: These loans don’t require an asset against them. Instead they’re dependent on your credit score and a risk assessment of the lender. Unsecured loans tend to have higher interest rates but also don’t put your property (or another asset) at risk.

Green loans: If you're doing renovations to make your house more environmentally friendly or to use less energy, you may qualify for a green loan. While these all have different requirements, they are useful for adding things like solar panels, insulation, or rainwater tanks.

How do I apply for a home renovation loan?

The application process will differ from loan to loan. You'll generally need to show evidence of your financial standing and history for the lender to make an accurate risk assessment. If you have good credit, you should be able to apply without issue.

It’s a good idea to work out how much you can potentially afford to borrow first. Our loan repayments calculator can help with this. You can also check out the best personal loans as determined by our Mozo experts to start comparing options.

The last word: Other reno costs to keep in mind

Home renovation plans are great, but the costs can actually be quite difficult to predict. While you might set out to spend $25,000, it’s very easy to get wrapped up in renovations and find yourself going over budget. 

Whether it’s pricey custom cabinetry or new plumbing that isn’t adding up, it’s best to build a buffer into your budget. As most renovation costs coincide with labour costs, you’ll also find that the longer things take, the more the bill can mount.

However, if you’ve done your homework and crunched the numbers, it’s time to find a renovation loan. Simply jump back up to the table above and start comparing some of the top loans in the Mozo database.

*Note that the comparison rate is generally based on a set scenario (i.e. either a $30,000 loan paid off over 5 years or a $10,000 loan paid over 3 years), so your actual loan will vary in its specifics.