Guide / Renovating

How do you finance a renovation?

Three ways, and the right one depends on whether you're moving walls. Here's what each costs, what the lender will ask for, and the term decision most people get wrong.

Reviewed September 2026

3Ways To Fund It$97,000Saved By Shortening The Term$0Brokerage Fee

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The short answer

You'll use one of three. Either you increase the home loan you already have, or you set up a construction facility that releases money in stages as the work gets done, or you spend what you've already paid into the loan through redraw or offset. Which one suits you comes down to the job, and mostly to whether walls are moving.

The rate you pay is much the same whichever it is. What changes the cost is the term you put the money over, and that's the one nobody at the bank asks you about. Add $150,000 to a 30 year loan and the interest on it comes to about $175,000. Put the same $150,000 on a 15 year split and it's about $78,000. The section below shows what that trade costs you a month.

First, are you moving walls?

Every lender draws its line in roughly the same place. A new kitchen, new bathrooms, floors, paint, a deck, all of that is cosmetic as far as the bank is concerned, even when it runs to $250,000. Knocking out walls, adding a storey, extending the footprint, that's structural.

The line matters because it decides which of the three options is open to you. Cosmetic work can be funded with a straight loan increase, and the money lands in your account. Structural work usually can't. On those jobs the lender releases the money through progress payments instead, paying for each stage of the build once it has been completed and inspected.

So the first thing I ask isn't how much you want to spend. It's whether the walls are staying where they are.

1. Increasing the loan you've got

This is the common one. If your home is worth more than it was when you bought it, that growth is equity you can access. Either you increase your existing loan, or you refinance to a sharper rate and release the equity in the same application. The money lands in your account before the work starts, and you pay the builder yourself.

How much you can access is limited by two things. The first is your equity. Most lenders will lend up to 80% of what the property is worth before lenders mortgage insurance is payable. On an Eastern Suburbs house valued at $2.4 million with $1.2 million owing, that leaves $720,000 of available equity. The second is your income, and for most people that is the tighter of the two.

For a $150,000 kitchen and bathroom job, this is nearly always the right answer. One application, one rate, one repayment.

2. A construction facility, for the bigger jobs

Structural work usually means a construction loan, which works differently from a straight increase. The lender approves the whole amount but releases it through progress payments as the build reaches each stage. Slab, frame, lock-up, fit-out, completion. The work is inspected or valued at each stage before the next progress payment is released.

You only pay interest on what has been drawn, which is worth real money. Take a $150,000 extension drawn down in four roughly equal progress payments across the first year. At 6.04% that's about $3,400 of interest. Draw the full $150,000 on day one and the same year costs you about $9,060. That's roughly $5,600 you keep, purely because the money stays with the lender until each stage is finished.

Most lenders will also let you pay interest only while the build runs and roll onto normal repayments at completion, which helps if you're paying rent somewhere else at the same time.

The trade-off is paperwork. Council approval or a complying development certificate, a fixed price contract with a licensed builder, and the builder's insurances. Owner-builder projects are fundable, but far fewer lenders will look at them, so tell me early if that's the plan.

3. Redraw or offset, if the money's already there

If you've been paying extra into the loan for years, some or all of the budget may already be available to you. No application, no fees, no valuation.

Two things to check first. Redraw isn't a balance, it's the bank's arrangement to lend that money back to you, and that arrangement can change. Being partway through a renovation with tradies booked is a poor moment to find that out. My redraw guide covers when that access can change.

The other is tax. If you're drawing from a loan against an investment property, what you spend the money on decides whether the interest stays deductible. Renovating that same property is fine. Spending it on your own home isn't, and you're left with a mixed purpose loan that has to be apportioned for the rest of its life.

For a $30,000 bathroom on an owner-occupied loan with plenty of redraw available, this is the easiest option here and I'd tell you to use it.

The term is where it actually costs you

When you add $150,000 to your home loan, it goes on for whatever's left of the original 30 year term. That's simply the default, and there's no prompt anywhere in the process to choose otherwise. At 6.04%, that $150,000 costs about $903 a month and a little over $175,000 in interest across those 30 years. You'd pay more in interest than the renovation itself cost.

Put the same $150,000 on a 15 year split instead and the repayment is about $1,269. That's $366 a month more than the 30 year version, and it brings the interest down to around $78,000. So the extra $366 a month is buying back roughly $97,000 over the life of the debt.

Setting that up is straightforward. Your existing loan stays exactly where it is on its own term, and the renovation money goes into a second split over a shorter one. Same lender, same rate, one extra account number on the statement. It's worth asking for, because the bank won't raise it on your behalf.

Worth knowing

If $366 a month is more than the budget has room for, stay on the 30 year term and make extra repayments instead. You get to the same place, with the option to ease off in a tighter month.

What the lender will want to see

For a modest cosmetic job, often nothing beyond the valuation. Lenders release cash out below a threshold without asking what it's for, commonly between $50,000 and $100,000 depending on the lender.

Above that, expect to hand over quotes or a scope of works. It isn't an interrogation. The lender is confirming the money is going into the property that secures it. Have the quotes ready before you apply and it won't hold up the application.

Structural work carries the longer list. Council approval, the fixed price contract, the builder's licence and insurances, and usually an as-if-complete valuation so the lender can see what the finished house is worth.

One thing to plan around. The valuation is done on the property as it stands today, not as you're picturing it. That catches people out around Coogee and Randwick, where an unrenovated semi on a good street is still priced as one. The equity you're borrowing against is the equity you have now, not the equity the renovation will create.

Common follow-up questions

How much can I borrow to renovate?

Most lenders will lend up to 80% of what your home is worth, less what you already owe, before lenders mortgage insurance is payable. On a $2 million property with a $900,000 loan, that leaves $700,000 of available equity. What you can actually borrow is whatever your income supports, and for most people that is the tighter of the two limits.

Do I need quotes or a scope of works?

For smaller amounts, often not. Lenders release cash out below a threshold without asking what it's for, commonly somewhere between $50,000 and $100,000 depending on the lender. Above that you'll need quotes or a scope of works. For structural work you'll also need council approval and a fixed price contract with a licensed builder.

Is a loan increase or a construction loan better for a $150,000 renovation?

If the work is cosmetic, a loan increase every time. It's one application and the money is in your account before the work starts. If you're moving walls or adding a room, the lender will want a construction facility instead, and drawing the money down in stages saves you real interest while the build runs.

Working out how to pay for it?

Send Shane your loan balance, a rough idea of the value and what you're planning to spend. He'll tell you which of the three fits, what it costs a month, and whether a split is worth setting up. Based in Coogee, working across the Eastern Suburbs, $0 brokerage fee either way.

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Your local Sydney Eastern Suburbs broker

Shane specialises in helping clients across Coogee, Clovelly, Bronte, Bondi, and all surrounding Eastern Suburbs.

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