How to finance your home renovations

Home renovations can breathe new life into your living space, increase your property’s value, and enhance your quality of life. But, your plans to renovate can be challenged by your budget; how do you afford your dream renovation?

While you may not have the savings squirrelled away for projects like this, there are options available to you that can help you complete home improvements the way you want to, without having to DIY or skimp on the essentials. In this article, we'll take you through the options available to help you finance your home renovations.

Whether you're planning some minor updates or a major overhaul here’s how easy it can be to make the home of your dreams a reality.

Know your budget

Before looking at which finance option suits you best, it’s important to establish how much money your renovation will likely cost. Create a detailed list of the improvements you wish to make and then obtain quotes from any contractors, builders or suppliers you want to work with, so you know how much money you’ll need. If you’re planning on doing the work yourself, you’ll still need to cost up materials.

Once you’ve established all the estimated costs, add a buffer of between 10-20% to cover any unforeseen costs that may arise once the work begins.

Having a clear understanding of the overall cost of your project will help you make important decisions, as well as help you to choose the most appropriate financing option.

Explore your finance options

Using your personal savings is the most straightforward way to finance home renovations. If you have the funds available, paying out of pocket means you won’t incur additional debt or interest charges.

To go down this route, you should make sure that using your savings won’t deplete your emergency fund or throw any other of your financial goals off course. If it will, you may want to take some more time to save some extra cash. We have tools available to help you with saving and everyday budgeting.

If you need to finance your renovations another way, there are a few different options that you can consider:

Home equity loans and lines of credit

A home equity loan allows you to borrow against the equity you’ve built up in your home and gives you access to a lump sum. If you want to fund major renovation work and have substantial equity in your property, it could suit you.

A home equity line of credit is a revolving line of credit also secured by your home’s equity. It provides flexibility, allowing you to withdraw funds as needed, up to a pre-approved credit limit – which means it’s good for ongoing or phased renovations.

With either of these options, you will need to be mindful that your home serves as collateral. That means defaulting on the loan could result in foreclosure and you risk losing your property.

Check out our Equity Access product if you think your home equity could help you fund your renovation dreams.

Home loan refinance

Another option that may be suitable for you, is to refinance your existing home loan. By borrowing a larger amount than your initial home loan, you could have access to the difference in cash.

Refinancing your home loan may be a viable option if you can secure a lower interest rate and need a significant amount of money for renovations, but you need to fully evaluate the long-term impact. Will you be able to afford the monthly repayments? How will the new interest costs impact you in the long term?

If you need help with refinancing options, we have calculator tools and a team of friendly home loan specialists to support you.

Personal loans

A personal loan can be either unsecured loan (that doesn’t require collateral) or secured. If you’re not sure of the difference, we’ve got you covered with this article.

If you don’t have enough home equity or prefer not to use it, a personal loan could be a good option for you. P&N Bank personal loans can be used for almost anything and offer flexible repayment options.

Credit cards

Using a credit card to cover renovation expenses can be convenient, especially for those smaller projects. However, you should spend with care and be cautious of high-interest rates and the potential impacts on your credit score. Consider this option for short-term projects or minor renovations that you can pay off quickly.

Consider the long-term

Before making any decisions on financing or even knocking down any walls, you should make sure that the renovations make financial sense. Will the changes you make to your property increase its value over the long term? Can you afford the renovations without them impacting your future financial goals?

Ensure you’ve thought about your credit score, overall budget and any other debts you must repay. You should consider whether you have a stable financial foundation before committing to a new financing option and beginning any renovation work.

Top tip! Check about additional repayments. 

No matter what type of loan or finance you choose for your project, it can really pay to have the ability to make additional repayments that are outside of your scheduled ones. For example, if your financial situation changes - perhaps you transition into a higher paying job or you receive a sizeable tax return - you may be able to pay off the loan sooner than agreed.

Bear in mind that not every loan has the option to make additional repayments though, so make sure you check before committing.

What is the right option for you?

If you’re not sure where to start, consider consulting with a financial advisor or lending specialist who can provide guidance tailored to your personal situation. They’ll be able to help you understand the implications of the different financing options and assist you in making an informed decision.

Financing home renovations requires careful planning and consideration of the various options that are available. By assessing your budget, exploring the different finance options that are available, and evaluating your financial future, you can choose the approach that best suits you and your grand plans. With the right financing in place, you’ll soon be well on your way to transforming your home into your dream space.