Guest Blog: How to fund a renovation project

By the resi financial blog team, 28 March 2014

How do I fund a renovation

Here are some ways that you can fund your much-needed renovation project.

Personal Loans

When it comes to using a personal loan to fund a renovation project, you have a few options.

You can choose a fixed or variable loan, and also choose to secure the loan or get an unsecured personal loan.

A fixed loan will give you piece of mind that your repayments will always be the same price over the course of the loan, while variable loan repayments may change depending on cash rate rises and falls. At the moment fixed rates are at a higher rate than variable loans, so you should take this into consideration when you are choosing between a fixed or variable loan.

You can secure your loan with something you own, such as a car, boat, jewellery, etc., secured loans usually have a lower interest rate than unsecured loans. But if you don’t have anything of value that is debt-free that you can use for security, an unsecured loan means you can still get a loan without the need to secure it with such an item.

You will also know exactly when your loan repayments will end, as a personal loan is over a set period of time, up to 7 years, as opposed to using a credit card, where your repayments and interest charges could go on forever.

When you are searching for a personal loan, check to see if the lender will let you make early repayments and additional repayments as this means you will have the opportunity to pay the loan off quicker if you get an increase in income, or can adapt your budget. This is much easier to do with a personal loan than if you refinanced the debt into your current mortgage.

Secured Lines Of Credit and Home Equity Loans

If you have been paying off your home loan for a while now, your home value may be worth more than the mortgage you have on it. If this is the case, you have something called ‘Equity’ in your home. Equity is the gap between what you owe on your home and what your home is worth, thus the bank will loan you money within this gap amount because they know that if you default they can get their money back by selling your home and taking their cut.

This financing option is of the most affordable ways to fund your renovation if you have previously built up equity in your home. It allows for two options, either an open-ended loan or a cash-out refinance.

Basically the open-ended loan (Line of credit) gives you cash in instalments as you require it, kind of like a credit card. The cash-out option (Home Equity Loan) gives you one up-front sum, kind of like a personal loan. The cash-out refinance option is subject to a higher level of interest than if you use the pay as you go option that the open-ended loan provides.

Credit Cards

If you want a project carried out quickly, and you already have credit card with a high limit, then using this to fund your renovation might be a good option for you. Mainly because you won’t have to wait for a loan to be processed, plus you can use it on what you need, as you need it, instead of taking out a lump sum loan and paying interest on that lump sum from day one.

However, this method can become very costly. If you do not pay the entire balance off in full by the end of the interest free period, usually 45-55 days, you will be slugged with a huge interest rate, which can be upwards of 20%! So be careful and plan thoroughly, if you are a person that is able to stick to a plan and budget than credit card financing could be a viable option.

Whether you will be using a personal loan, a line of credit, a home equity loan or a credit card, you should make sure you find the best rate, you can do this by comparing the loans and credit cards on offer from multiple banks and lenders through free comparison sites such as MoneyBuddy.

The most important thing to remember when looking to undertake renovations is that you want to be adding value to your home. You do not want to spend more on the renovation than the value that is added to your house. If a new kitchen adds $10,000 value to your house, do not spend more than $10,000 on the construction of the kitchen. You should only consider borrowing if you are confident that the renovation will increase the value of your home or improve your current standard of living.

Article written by Blake Moffat, Community Manager from

Categories: Guest Blog, Money Buddy, Renovation