Renovation loans in Australia

If talk of a renovation grant has got you thinking about home improvements, you might be surprised to learn you have to sink some serious money to get the government cash. For the $25,000 grant, you’ll need to stump up $150,000 of your own money first. Some dreams are big – second home loan big.

But if your renos are south of the six-figure mark, a simple renovation loan might be a much more manageable option.

How much can I borrow?

A renovation loan is a type of personal loan to cover the costs of a home renovation. So it won’t be like committing to another mortgage. With Plenti, you can borrow between $2,000 and $50,000 for a loan term of 1 to 7 years depending on your loan type.

Paying for your home improvements with a renovation loan means you can pay it off in a much shorter amount of time than a home loan. Even though it might be at a slightly higher interest rate, fewer repayments mean you’ll keep more money in your pocket over the long run.

What can I use a renovation loan for? 

It’s time to transform your unique dreams, goals and priorities into reality. An unsecured renovation loan buys you the freedom to use the funds for almost anything! We’re talking about improving your kitchen, updating your bathroom, extending into the loft or just finishing off the landscaping you’ve been putting off for a while now. 

According to a recent survey by Houzz about renovations in Australia, the popular projects included 

• Kitchens - the most popular choice (26% of respondents)
• Living Room upgrades accounted for 23% of renovations, with the trend to open plan living and indoor/outdoor spaces maintaining popularity
• Bedroom renovations were surprisingly the third most popular project, potentially including adding additional bedrooms 
• Bathroom renovations are always important, with 17% of renovation plans including upgrades or additional bathrooms for home life harmony

Your lender will want to know the purpose of the loan when you apply. They’ll take this into account when tailoring the loan size and conditions.  

What kinds of renovation finance can I access in Australia?

Many Australians fund their home improvements by extending their mortgage, or ‘topping it up’. Mortgage rates are at an all time low at the moment, so the change to a  monthly repayment will be relatively small. In the short term at least. While interest rates are changeable, one certainty is that the loan term for a mortgage can be much longer than most other kinds of finance. And this means, over the many years, you may end up paying a lot more interest than you expected when you put in the new patio. Be sure to add up the total expected cost of the loan before taking this option with your existing lender. 

The most popular kind of loan is an unsecured loan: they’re flexible across a wide range of purposes, and if you have proof of a regular income and a decent credit history then this could easily be the personal loan for you. 

If you’d like to lock in a lower interest rate or perhaps your credit rating isn’t so grand, then a secured loan may be your better option. You simply secure your loan with an existing asset you use as collateral, and this could be the property you are planning to renovate. The bank considers these loans less of a risk so they offer a lower interest. There is a longer application process, relating to the asset you’re offering as security, but in the end you may be able to borrow larger amounts and have a longer repayment term.

Self-employed, freelance or casual seasonal worker? A low-doc loan may be what you’re looking for. All the funds without the lengthy loan application process. Lenders consider low-doc loans to have more risk than a secured or unsecured personal loan, so they’ll offer higher interest rates to offset that risk. But the plus for you - less documentation is required. You won’t need to provide as many pay slips and tax returns as standard personal loans. This means the process to apply is far simpler and less time consuming than a standard loan.

Already have a loan? Want to get a better one and save, or consolidate your current debts? Then you need a refinancing loan. These are designed to take over your current loan or loans, so you can save on interest rates and fees - and time paying multiple repayments. They’re even a good option if your credit score has improved as you’ll be able to get a better rate.

Are renovation costs tax-deductible in Australia?

If your property is a rental or if you have plans of renting it out, you can claim the interest charged on your loan on your tax. But don’t expect to claim a tax deduction for the total cost of improvements to a rental property – you can only claim for work that is a repair or maintenance.

Examples of what you can claim include:

• Replacing broken windows
• Replacing guttering or downpipes
• Replacing a part of a fence due to damage (e.g. a fallen tree)Repairing electrical appliances
• Repainting interior walls
• Cleaning a swimming pool or oiling a deck
• Maintaining plumbing

You can’t claim for improvements. And if you’ve made both repairs/maintenance and home improvements, you can only claim an income tax deduction for the cost of your repairs/maintenance if you can separate the cost of the repairs from the cost of the improvements.

Where do I find a renovation loan lender?

Traditional banks, credit unions, neobanks and online loan providers all offer loans that may fund a renovation. Some have better rates than others, with less fees and charges, and some are specifically tailored to a home improvement project. 

The important thing is to compare the loans available to discover which one suits you best. Then once you know what kind of loan you want you can then compare all of those styles of loan on offer.

Compare, compare, compare

Research takes time but it’s made easier with comparison websites and rate calculators. Plus, it pays to spend this research time as it can save you a ton of money in the long run.

 You can compare loans with the Plenti comparison calculator including comparison rates, interest rates, application fee, exit charges and loan term. The comparison rate is the one to watch as it will show one figure that encompasses the entire cost of the loan you are researching.

What do I need to apply?

Depending on the type ofl loan, you’ll need a certain amount of documentation.

Proof of income with pay slips and employment contracts, letters from your accountant, proof of home ownership or years in business, your ABN if self-employed and other documents. If you are applying for a secured loan then you’ll need proof of your assets and their value.

You’ll definitely need proof of identity for all loans, so make sure you have your drivers licence, passport, proof of residency and similar documents. 

What’s the easiest and quickest way to secure finance for my renovation?

Convenience is king, right? When it comes to personal loan applications and approvals, online is the most convenient.

However, do be aware that the easiest and fastest way may not always be the best way to save money. A low-doc loan is quick and convenient but comes with higher interest, a secured loan has lower interest rates but will take longer to process.

What loan rates can I expect?

The Reserve Bank of Australia reports that the average variable interest rate for a personal or renovation loan is 14.41% and 12.42% for a fixed loan. But of course, you’ll find lower and higher than both of those on the market.

If you borrow with Plenti, we'll take your personal history and credit rating into account to create a rate tailored rate just for you.