Five things you must do to finance a home reno

Renovation has been a growth story of COVID-19 as Australians spend more time and money in their homes.

And financing a renovation project has become easier thanks to record low interest rates, but borrowers should still tread carefully.

Recent Commonwealth Bank data shows strong spending growth for household furnishings, while the value of council approvals for alterations and additions has had its biggest gain in more than two years.

Consumer finance specialist Lisa Montgomery says the reason for the surge is simple: “People need a project when they can’t leave the house”.

“If you can’t look outward, you look inward, and interest rates are at all-time lows so people can take advantage of cheap cash,” she says.

Montgomery says the lowest-cost way to pay for renovations – apart from using cash reserves – is your home loan if you have equity and the ability to redraw money.

Mortgage and consumer finance specialist Lisa Montgomery Picture: Supplied

But understand the impact of redrawing and whether it erodes your emergency funds.

“If it’s a large amount of money, the lender might need you to provide a valuation and financials,” Montgomery says.

Beware of underestimating what you will spend. “Costs can blow out often – you never hear anybody say ‘hey, I paid 20 per cent under for that renovation’,” Montgomery says.

She says small jobs can be covered by credit cards or personal loans but make sure the interest rate is low. “Check rates on comparison sites and make sure you can repay it within the terms.”

Beyond Bank Australia’s general manager of customer experience, Nick May, says there has been much higher borrowing activity around renovations.

“We think this is because holidays and other entertainment plans have been either cancelled or postponed which means households are using any extra funds to renovate, landscape and upgrade the home,” he says.

Research what finance deals and other assistance is available. “There are lots of good grants and stimulus packages around that have been generated by the Federal and State Governments during COVID,” May says.

He says renovators should structure their finances to allow them to withdraw money gradually.

“You don’t want to be paying interest on money that you have not yet used,” he says.

“There are lots of different ways of doing this ranging from a secured overdraft to a loan that allows you to draw it down.”



1. Research loan options before deciding on how you’ll pay.

2. Seek the lowest interest rate – this is usually your home loan.

3. Expect to spend more than you initially plan. Some experts suggest up to 20 per cent.

4. Have a financial buffer. Interest rates won’t be rising soon, but what if your job or wage gets affected by COVID-19?

5. Consider other financial impacts, such as increasing your insurance bills if you add rooms or home contents.

Originally published as Five things you must do to finance a home reno

Nick May, GM Customer Experience Beyond Bank Australia

Nick May, GM Customer Experience Beyond Bank Australia

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