Mozo guides

7 ways to fund your home renovation

A couple are talking about the best way to fund their home renovation

Perhaps you’ve been thinking about your kitchen lately, and that it might be time to tear it down and build something more modern - or maybe your living area could use a fresh coat of paint to brighten the space. However big or small your home renovation project may be, you still need the funds to make it happen. 

The good news is there are plenty of options to finance your home renovation. So sit back and imagine your idea of the perfect living space as you learn about the top ways to fund your home renovation.

Use your savings

If you’ve been disciplined with your savings over the years, then you may have a stash of cash to pay for your renovations. Savings is always your best option, as you avoid paying interest and amassing more debt.

But renovations aren’t cheap, and with complete bathroom makeovers costing up to $35,000, it could take years to save up enough money before you see the reno work done to your bathroom. Realistically, your savings will likely only cover smaller projects like a new paint job or fitting a flyscreen door.

Advantages of tapping into savings:

  • No loans to repay.
  • Lower costs or fees than other financial products.
  • No hefty interest rates as you’d see with some loans.

Disadvantages of tapping into savings:

  • It could take a long time to reach your savings goal and if the interest rate on your savings account doesn’t match the pace of inflation ( 5.4% in the September quarter), it may be more expensive to renovate down the line. 

As it stands, the average introductory rate on a savings account with balances at $10,000 is ^5.09% p.a., according to Mozo’s database. While this is below the inflation rate of 5.4%, providers such as MOVE Bank are offering interest rates that reach an impressive 5.70% p.a. which goes to show there is benefit to shopping around.

If you think using your savings to fund your home reno is the right move for you, why not have a look at some of the best savings accounts that our experts at Mozo have tracked this month.

Sign up for a low interest credit card

A low interest credit card is another option to consider if you’re thinking of funding any small home renovation (think minor changes around the home and inexpensive DIY projects).

Taking on a project with a credit card has its pitfalls though, and paying it off with interest needs to be weighed up properly.

At present, Mozo’s database shows the average interest rate of all personal credit cards as ^17.11% p.a. to give you an idea of how rates are faring. And with some providers offering an interest-free period, you may be able to avoid paying interest and other penalties when you pay the balance off in full and on time each month.  

Advantages of credit cards:

  • Usually easy to apply and be approved for.
  • If you do your sums and stick to your budget you can finance the project without paying interest, or very little interest all up.
  • Convenient when it comes to purchasing home renovation products online.

Disadvantages of credit cards:

  • Annual card fee of around ^$146 (on average).
  • It’s also important to pay your bill on time as you could otherwise be hit with a late payment fee and interest. 

There aren’t many rewards attached to a low interest credit card.

Apply for a personal loan

If you know exactly how much your home renovation will cost, you can apply for a personal loan. The application process is usually quick, and seeing the funds hit your bank account within hours of getting approval for a personal loan is possible - depending on your lender.

If your renovation is medium-sized, you may want to consider an unsecured personal loan. This loan is typically offered at smaller borrowing amounts, ranging anywhere between $2,000 up to $70,000 for a loan term of 1-7 years. Do keep in mind though, interest rates can be high.

If your projects are on a larger scale, such as building a new bedroom or redesigning a kitchen, then a secured personal loan might be an option worth considering. These interest rates tend to be slightly lower than unsecured loans, with higher borrowing amounts and longer terms. And while personal loans are generally higher than mortgages, they do have lower interest rates than credit cards. Something to think about.

Advantages of personal loans:

  • Interest rates can be fixed for the duration of the loan, a big plus when it comes to budgeting.
  • Simple and cost-effective way to fund your home renovation.

Disadvantages of personal loans:

  • Some lenders charge fees, so whether it be application or ongoing fees, make sure you read the fine print before taking out a personal loan. 

Use your home’s equity

Funding home renovations for this row of colourful houses

If it’s large scale renovations you’d like to undertake, then tapping into your home loan is another option for financing a project. This is the most common method Australians use to fund home renovations.

Equity is the difference between the bank’s valuation of your house and the amount you still owe on your mortgage. For example, if your home is valued at $700,000 and your mortgage is $450,000 then you have $250,000 equity in your home.

Though it’s unlikely the bank will loan you the full amount, you can typically expect to borrow up to 80% of the value of your home. So hopefully you have enough equity built up to finance those much needed renovations!

Advantages of using home equity:

  • Interest rates on home equity loans are typically lower compared to personal loans or credit cards.

Disadvantages using home equity:

  • Your mortgage could get bigger, which could in turn mean higher repayments and more time spent paying off the loan before you own your home.

Refinance your mortgage

Another way to fund renovations, at least indirectly, is by refinancing your mortgage. It’s a good idea to review your current home loan every few years to determine whether it’s still a competitive deal against other offers.

By refinancing your mortgage to a lower interest rate, your monthly repayments could decrease, saving yourself thousands of dollars that can now go towards the renovations.

As it stands, the amount of money in refinancing was 12.4% higher in August 2023 compared to the previous year, according to recent data from the Australian Bureau of Statistics (ABS). This means that more homeowners could be looking to refinance in order to score a lower interest rate on their home loan and in turn save some money. So it may be a good time to start shopping around. 

Advantages of refinancing a home loan: 

  • Enjoy a range of extra features designed to help you save money like offset accounts, extra repayments and split loan functions.

Read Mozo’s guide on refinancing tips and tricks.

Disadvantages of refinancing a home loan: 

  • There are some potential fees that you may want to watch for when refinancing, including an exit fee from your current lender, mortgage registration fee, application fee, and valuation fees.

Maximise the redraw facility

If you’re considering a small renovation it could be worth your time and money to redraw on your home loan to fund the project. However, note that redrawing isn’t for everyone and requires some home loan know-how.

If you’ve made extra repayments on your home loan, a redraw facility (generally only available with variable rate loans) allows you to dip into the additional payments you’ve made. Also, keep in mind, not all home loans have a redraw option.

Advantages of using a redraw facility: 

  • The fee for redrawing is lower than paying interest on a personal loan, which could go beyond 15%.

Disadvantages of using a redraw facility:

  • The hard work you’ve made through extra repayments has become obsolete and there may be a limit on the amount you can redraw.

Use a line of credit

The final option for funding your home renovation is using a line of credit. Once you’ve got equity in your property you can refinance with your current provider or a new lender to a line of credit loan.It works as a revolving loan facility that you can access whenever you want. This can be as a lump sum or be drawn out in stages. For example, you may want to use a line of credit to pay builders as you go.

Advantages of a line of credit:

  • Interest is only charged on the balance owed, and not on the total loan amount.

Disadvantages of a line of credit: 

  • You’ll be charged a higher interest rate compared to the standard variable rate available and there may also be fees associated with using the facility.

If you’d like to compare the top home loan rates, why not check out some of the best home loans our experts at Mozo have tracked this month, or compare your top picks below!

^Calculations are made based on the best credit score data available to Mozo and are correct as at 4/12/2023. 

Home loans comparison table - last updated 27 May 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

Mozo’s team of experienced journalists and money experts provide news, insights, practical guides and expert analysis to help you master your personal finances. We follow editorial guidelines that focus on accuracy, reliability and timeliness; helping you make informed financial decisions with confidence and the most of your hard-earned money.

Sophie Wong
Sophie Wong
Money writer

“Life can be unpredictable, and I’ve always thought that having money saved up for a rainy day would be immensely helpful. To have that security means that I can use the excess to invest or treat myself on occasion!”

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.