There’s a moment every renovator hits, where the fun of a renovation gives way to a much more practical question: how are we paying for this?
If you’ve hit that wall, you’re not alone. More Australians are choosing to improve their existing homes, with the value of renovation lending now almost three times higher than its pre-pandemic level. Rising land prices have also encouraged more households to extend or renovate rather than move. The tricky part usually isn’t deciding what you want done. It’s working out how to fund it.
For a lot of homeowners, that means looking beyond savings alone. Dipping into your mortgage, applying for a personal loan, or using a credit card are the three most common routes. Home improvement loans from Handy Finance are another way to approach the cost, giving you a structured way to fund the project without refinancing your entire home loan.
Knowing which path suits your project (and your bank balance) is where the real decision-making happens.
Here’s what to look for in a home improvement loan:
Renovation loan options
If your renovation is on the smaller side (think a bathroom refresh or new flooring), a personal loan can be one way to cover the cost of the project, since it has its own terms and repayments. This means you’ll make separate, set repayments alongside your existing mortgage.
For bigger structural jobs, a mortgage top-up or redraw can allow you to use your existing home loan to help fund the renovation. The renovation costs are then added to your home loan and repaid over the remaining mortgage term.
Secured or unsecured loans
With a secured renovation loan, an asset such as your car or home equity is used as security for the loan. Because the loan is secured against an asset, the interest rate may be lower. By contrast, an unsecured loan doesn’t require collateral, although the rate may be higher.
Fixed or variable: understanding your rate
A fixed rate stays the same for the life of the loan, meaning repayments stay the same, regardless of shifts in the market. This can make budgeting easier, particularly if you’re already juggling renovation costs. Meanwhile, a variable rate can move up or down as interest rates change, meaning your repayments may change, too.
Understanding comparison rates
The headline interest rate is only part of the picture. As ASIC’s MoneySmart points out, a comparison rate takes the interest rate and most compulsory fees into account, giving you a clearer picture of what the loan could actually cost.
For example, when comparing two renovation loans:
- Loan A: Lower advertised interest rate, but higher fees.
- Loan B: Slightly higher advertised interest rate, but lower fees.
- The comparison rate: Takes those fees into account, giving you a better basis for comparing the overall cost of each loan.
The fees that come with a home improvement loan
Establishment fees, ongoing account fees and early exit fees can all add up over the life of a loan, sometimes more than the interest rate itself! Straightforward pricing structures, such as no account-keeping fees or penalties for paying out a loan early, are worth looking out for when comparing your options. The fee structure can tell you more about the overall deal than the headline rate alone.
How repayments are structured
Most personal loans for renovations run somewhere between one and seven years, and plenty of lenders now let you choose between weekly, fortnightly or monthly repayments. Lining that up with how you’re actually paid, rather than defaulting to monthly, can make a loan feel a lot less like a burden and more like just another bill to pay.
Borrowing within your budget
It’s easy to let the number a lender is willing to offer shape how big your renovation gets. But ASIC’s MoneySmart suggests going the other way:
- Set a budget based on what you can comfortably repay.
- Allow for a 2-3% rise in interest rates.
- Base your borrowing figure on your budget, not the lender’s maximum offer.
The amount that works for one homeowner may look very different from another. Your renovation plans, income and existing commitments all shape what fits comfortably within your budget.
Credit file impact
One upside of online lending is that most providers now let you get an indicative quote without it showing up as a hard enquiry on your credit file. That makes shopping around genuinely low-risk. Getting two or three quotes can give you a clearer picture of the deals available before you commit.
Bringing your renovation plans together
Renovating is exciting, and choosing how to pay for it doesn’t have to undo that. From loan type and interest rate to fees, repayments, and borrowing capacity, the details can look very different from one home improvement loan to the next. Understanding those differences gives you a clearer picture of how the finance could fit around the renovation you have in mind.
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