Renovation Loans: How to Finance Your Home Improvements

Renovation loans are becoming a vital tool for Newcastle homeowners as renovation costs continue to rise. 

In 2024, the median cost of a major renovation in Newcastle is valued at around $200,000–$250,000, with bathroom upgrades ranging from $25,000–$35,000 and kitchen remodels costing $40,000–$60,000. By 2025, demand for home improvements is set to grow due to rising property values and government incentives for energy-efficient upgrades, increasing the need for smart financing options.

This is where experienced brokers like the team at Mortgage Brokers Newcastle come in. Our brokers simplify renovation loans by comparing options, handling paperwork, assess your finances and plans, thereby securing competitive rates that best fit your needs. 

In this article, we will explore more how renovation loans can help fund your dream home improvements.

What Is a Renovation Loan?

A renovation loan is a type of financing designed to cover renovation costs for home improvements, whether it's minor repairs or a major renovation project. Unlike traditional home loans, renovation loans provide flexible financing options tailored to different renovation plans.

These loans can fund various upgrades, including kitchen remodels, bathroom upgrades, structural renovations, and energy-efficiency improvements. Depending on your financial situation and project scope, you can choose from options like a construction loan, equity loan, or personal loan.

Renovation loans help homeowners manage labour costs, material expenses, and unexpected costs while maintaining stable cash flow. 

With expert mortgage brokers, you can find a suitable loan option that fits your budget and renovation goals.

How to Fund Your Home Improvements

Financing a renovation requires careful planning to ensure you have the right loan option that suits your project’s scope, budget, and timeline. Whether you're tackling minor repairs, adding an extra bedroom, or undertaking a major renovation project, it's important to explore the best financing options. Below are 12 ways to fund your home renovation, along with expert tips to help you make an informed decision.

#1  Home Equity Loan

A home equity loan allows homeowners to borrow against their property's usable equity, making it a great choice for larger renovations like home extensions, kitchen remodels, or adding an extra bedroom. 

These loans come with fixed loan terms and predictable monthly repayments, which provide stability and help manage cash flow effectively. Since it’s a secured loan, interest rates are generally lower than personal loans or credit cards, but borrowing is limited by the current market value of your home.

💡 Top Tip: Use an equity calculator to determine your borrowing potential before applying. This helps avoid borrowing more than necessary and ensures your monthly repayments remain manageable.

#2  Construction Loan

A construction loan is ideal for structural renovations or projects that require significant work, such as a knockdown rebuild or second-story addition. 

Unlike a traditional home loan, these loans release funds in progressive drawdowns, meaning you only pay interest on the amount used during each stage of construction. This helps keep renovation costs under control while ensuring funds are available as needed.

💡 Top Tip: Before applying, have a detailed renovation project plan and an estimate of costs, including labour costs, materials, and council approval fees. Lenders will review these to determine loan eligibility.

#3  Personal Loan for Renovations

A personal loan is a fast and flexible way to finance small-scale renovations, such as bathroom upgrades, cosmetic improvements, or landscaping. These loans don’t require sufficient equity, making them accessible to homeowners with limited home value growth. However, interest rates are typically higher than secured loans, and the repayment schedule is shorter, which may impact cash flow.

💡 Top Tip: Compare loan interest rates from different lenders, banks, and credit unions to find the most competitive rates. Opt for a manageable loan with flexible repayment terms to avoid financial strain.

#4  Line of Credit Loan

A line of credit loan provides ongoing access to funds, making it an excellent choice for multi-phase renovations or projects where cost estimates are uncertain. 

You only pay interest on the amount you withdraw, allowing for greater flexibility in managing renovation expenses. However, these loans often have variable interest rates, which can fluctuate over time.

💡 Top Tip: If choosing a line of credit loan, set a budget calculator and track expenses to avoid excessive borrowing. It's best suited for homeowners with good credit scores and a solid repayment plan.

#5  Cash-Out Refinance Loan

A cash-out refinance loan lets homeowners refinance their current home loan to access extra funds for renovations. 

This option is beneficial for those with a low-interest rate home loan, as it allows them to consolidate their mortgage and renovation costs into a single loan. However, refinancing may extend the loan term and increase overall mortgage repayments.

💡 Top Tip: Before refinancing, compare your current loan terms with new offers to ensure you get the best deal. Consult a mortgage broker to evaluate potential risks and loan repayment changes.

#6  Government Grants and Rebates

Homeowners can benefit from government grants and incentives for renovations that focus on energy efficiency, sustainability, and accessibility improvements. 

Programs like the Home Energy Efficiency Retrofit Grant help cover the cost of solar panels, insulation upgrades, and water-saving fixtures. While these grants don’t cover all renovation expenses, they can significantly reduce upfront costs.

💡 Top Tip: Visit the NSW Government website or consult a lending specialist to check eligible loans and programs. Applying early increases your chances of approval.

#7  Guarantor Loan

A guarantor loan allows a family member to use their property as security, reducing lenders mortgage insurance (LMI) costs. 

This is useful for first-time renovators or homeowners with limited equity who need financial assistance. However, the guarantor assumes financial risk, so it’s important to ensure repayment terms are manageable.

💡 Top Tip: Only use a guarantor loan if you have a clear financial plan and stable income. This prevents burdening family members with potential debt obligations.

#8  Bridging Loan

A bridging loan is a short-term solution that helps homeowners fund a renovation while transitioning to a new property. 

This is particularly useful for homeowners selling their current property and moving into a newly renovated home. However, interest rates on bridging loans tend to be higher than traditional home loans.

💡 Top Tip: Ensure you have a clear repayment strategy before applying. Bridging loans should be used for short periods to avoid accumulating excessive loan fees.

#9  Credit Cards for Small Renovations

For low-cost improvements like painting, new fixtures, or minor repairs, credit cards can be a convenient option. However, they typically carry high-interest rates, making them a poor choice for long-term financing or large-scale renovations.

💡 Top Tip: Use a credit card only for short-term expenses and repay the balance quickly to avoid accumulating credit card debts.

#10  Savings and Budgeting

If possible, using personal savings is the best way to avoid loan interest rates, application fees, and financial commitments. Budgeting in advance allows you to plan for unexpected expenses without relying on loans.

💡 Top Tip: Create a cost analysis before starting the renovation. This will help you allocate funds efficiently and prevent overspending.

#11  Progressive Drawdown Loans

A progressive drawdown loan is ideal for larger renovation projects where funds are needed in stages. This helps manage construction costs without paying interest on the full loan amount upfront.

💡 Top Tip: Work closely with your builder and lender to schedule drawdowns efficiently. This ensures smooth cash flow throughout the renovation process.

#12  Investment Property Loans

For rental properties, an investment loan can help finance renovations that increase rental yield and long-term property value. These loans may offer tax benefits and can be structured with interest-only periods to ease cash flow.

💡 Top Tip: Speak to a financial advisor to determine how an investment loan fits into your long-term financial strategy.

Choosing the right renovation loan depends on your financial situation, project size, and repayment capacity. Consulting a mortgage broker can help simplify the process and secure competitive interest rates.

FAQs

What is the best loan for renovations?

The best loan for renovation depends on your budget, project size, and repayment capacity. A home equity loan or renovation home loan suits larger loans for structural changes, while a personal loan or unsecured loan is ideal for smaller upgrades with a shorter term.

How much can I borrow for a renovation loan?

Your maximum loan depends on your equity, credit history, and renovation plans. Consult a mortgage broker or use an equity calculator to estimate your loan balance and check for additional funds needed for progress payments and extra costs.

Which bank is best for a home renovation loan?

The best renovation home loan depends on your financial situation and comparison rate. A wide range of banks and lenders offer different loan products, so compare mortgage rates, variable rate options, and renovation financing options to find the best fit.

Are renovation loans available for minor repairs?

Yes, personal loans and credit cards can cover minor repairs, cosmetic upgrades, and small improvement loans. These types of renovation loans work best for non-structural projects with a shorter term and lower loan balance.

Do I need council approval for renovations?

Council approval is required for structural renovations, major building projects, or construction plans in Newcastle. Checking with your current lender and council early in the application process can help you avoid delays in project timelines.

Can I use a renovation loan for an investment property?

Yes, renovation loan options are available for investment properties to enhance living space and increase rental value. A comprehensive plan with contingency plans for cost of materials and additional repayments is essential.

What are the costs involved in renovation loans?

Costs include loan fees, mortgage rates, extra costs for construction projects, and additional repayments. A financial product like an improvement loan requires a detailed cost analysis, including progress payments and a financial advice session to manage your renovation financing options.

Final Thoughts

Renovation loans in 2025 provide Newcastle homeowners with flexible financing options to bring their renovation plans to life. Whether you're adding living space, upgrading a kitchen, or starting a major renovation, the right type of renovation loan can help manage costs and keep your project on track. 

With expert mortgage brokers by your side, you can explore renovation home loan options, progress payments, and additional funds that suit your budget. Get a free consultation today—call Mortgage Brokers Newcastle at 02 4920 6468 or visit Mortgage Brokers Newcastle to start planning your dream renovation!