Home renovation loans explained: a guide for renovators

3 June 2026 * 5-minute read

Thinking about renovating your home? Whether you’re modernising a tired kitchen, adding an extra bedroom, upgrading outdoor spaces or improving energy efficiency, home improvement projects can increase comfort, functionality and even the value of your existing home. 

But renovation costs can add up quickly. From materials and trades to permits and unexpected expenses, many Australians need to borrow funds to bring their plans to life. Understanding your loan options — and choosing the right renovation loan — is critical to avoiding stress, cost blow-outs and unnecessary interest.

Here’s what you need to know about financing your home makeover.

Key takeaways

• A renovation loan could be funded through your home loan, home equity, refinance, construction loan or a personal loan — the right option depends on your financial situation and renovation costs.
• Using your existing home loan could mean a lower interest rate, but you may pay more interest over a longer loan term.
• Always compare loan options, fees, interest rates and monthly payments to ensure the funds fit your long-term goals.

Options for funding your home makeover

There are several ways to fund a renovation, depending on the scale of the work, your equity and your financial institution. The most common loan options include:

• Using equity in your current home loan
• A redraw facility
• Topping up your home loan
• Refinancing your mortgage
• A dedicated renovation loan
• A construction loan
• A personal loan (often an unsecured loan)

Each option comes with different interest rates, fees, loan terms and repayment structures.

Using your home equity 

If you already have a mortgage, you may be able to use your home equity to fund your home renovation.
 

Equity is the difference between the value of your property and the amount you still owe on your home loan. Equity is usually built up over time as you pay down your mortgage, and if the market value of the property increases.

So how can you use your equity to fund your renovation? A home loan top up (or increase) allows you to borrow extra money against your current home. If you have equity in your home (and room in your budget to make extra repayments), you could potentially ‘top up’ your existing loan amount to help you pay for a renovation.

To get an idea of the amount of usable equity you might have in your home, use our home equity calculator. Keep in mind that you won’t be able to access all the equity in your property – your lender will calculate how much of it you can draw on. 

At Westpac, we calculate your usable equity as 80 per cent of the total value of the property, minus the outstanding balance of your loan.

Using equity can be attractive because it typically offers a lower interest rate than a personal loan, and you may even be able to negotiate a lower rate on the additional funds.

However, topping up your existing loan means you could pay more in monthly payments or lengthen the time it takes to pay off your home loan. 

Using a redraw facility

A redraw facility is a home loan feature that lets you make extra repayments on your mortgage to help you pay it off sooner, while still giving you the flexibility to withdraw that money if you want to. If your current home loan has a redraw facility, you may be able to access additional repayments you’ve already made.

This can be a cost-effective way to fund smaller renovations because:

• You’re using money you’ve already paid into your mortgage
• You avoid applying for a new loan
• There may be minimal fees

Refinancing your home loan

Refinancing means switching your mortgage to a new lender — or renegotiating with your current one — to access extra funds for renovation.

Homeowners often refinance to:

• Secure a lower interest rate
• Access home equity
• Consolidate debts 

Refinancing could reduce your monthly repayments if you secure a better variable rate or extend the term of your loan. But it can be a good idea to compare fees and consider whether you can make additional repayments, and whether you’ll pay more interest over the life of the loan. You may also want to consider any costs associated with refinancing, such as break costs, or a discharge settlement fee. 

Renovation loans

A home renovation loan is designed for home improvement projects and generally uses equity in your home or another asset as collateral. These loans may provide staged payments, and repayments are made over an agreed term with structured monthly payments. 

If the renovation is significant, your lender may treat it similarly to a construction loan.

The benefits of construction loans

If you’re looking at taking on a larger project, like a knock-down or remodel, a construction option could be the way to go. Construction loans can be ideal for major, structural renovations, with funds released in stages to coincide with building milestones.

Potential benefits include:

• Progress payments, allowing you to cover invoices and bills as they come in (Rather than dealing with a lump sum, these progress payments might help you manage your cash flow better).
• Interest-only repayments during construction 
• Structured building milestones

The best bit? You could save a bit of money, as you're only paying interest on the progress payments made so far. After the loan is fully drawn down, you'll generally revert to paying principal and interest.

Is it cheaper to renovate or to knock down and rebuild? 

For major projects, knocking down your current home and rebuilding may be more cost-effective than renovating.

In this case, a construction option is usually required. This type of loan releases funds in stages as the build progresses. Interest is typically charged only on the amount drawn down at each stage.

Using a personal home renovation loan for smaller renovations

Personal loans can be used for various purposes, including kitchen and bathroom upgrades, extensions, painting or landscaping, or general repairs.

Personal loans can be used for home renovations and typically offer fixed repayment terms. At Westpac, we offer unsecured personal loans and the funds are deposited into your account as a lump sum. 

Personal loan repayments often have a lower interest rate than credit cards (but a personal loan rate may however be higher than a home loan rate), and there’s no need to provide collateral if you decide to go with an unsecured loan.

Keep renovation costs in check: set a timeline and budget

One of the biggest risks in any home renovation is underestimating costs. As well as a budget, it's important to set a timeline for your renovation project.

To help avoid financial strain:

• Build a contingency buffer (budgeting for renovations should include a 10-20% contingency for unexpected expenses)
• Confirm fixed-price contracts where possible
• Monitor progress and spending
• Understand your cash flow before committing

Blow-outs can mean borrowing extra funds unexpectedly, increasing your loan balance and the total interest.

How to apply for a renovation loan

When applying for a home renovation loan, lenders will assess your financial situation carefully.

Be prepared to provide:

• Proof of income
• Details of your existing home loan and proof of home ownership
• Property valuation
• Renovation quotes
• Information about your monthly expenses

You may need to verify some of your details after submitting your application.

Lenders operating under an Australian Credit Licence must assess whether the loan is suitable for you. This includes ensuring you can manage repayments without substantial hardship.

Before signing:

• Compare interest rates (fixed vs variable rate)
• Review fees and charges
• Understand the total cost over the loan term
• Check whether you can make additional repayments

To sum up 

A well-planned renovation could enhance your lifestyle, boost property value and modernise your space. But borrowing to fund a home makeover is a serious financial decision.

Whether you top up your home loan, refinance, access home equity or take out a personal loan, understanding interest, repayments, fees and loan terms is essential.

Take time to compare lenders, calculate your repayments carefully and ensure any loan fits comfortably within your budget. With the right planning and the right funds, your project can become a reality, without unnecessary financial stress.