Home renovation loans: How to get one + how they work

This means you’re simply adding the borrowing for the renovation to your existing home loan, with whoever your current lender is. This lending is secured against your home, and usually features regular home loan interest rates. At the time of writing (14/04/2026) these could be as low as 4.49% for one year.

Must-know mortgage Ts and Cs 

• You can usually only borrow up to 80% of your home’s ‘as complete’ value, sometimes called the ‘Tentative on Completion Value’.
• The lender may require a valuation of your home, which usually costs around $1,000. 
• During the renovation these loans are usually interest only, with a floating interest rate, then afterwards you’ll have the opportunity to fix and start making principal and interest payments. 
• To apply for a loan like this you’ll need to have a signed, fixed price building contract, with a licensed building practitioner. 
• This will need to include a payment schedule, with funds released by the lender when the builder has reached certain milestones - like completing framing, getting flooring down, or finishing joinery. 

It’s a good idea to speak to your bank or mortgage broker and get an indication that they’d be willing to lend you the amount you need before you enter into a building contract (just to avoid any nasty surprises!).

Hot tip: you can choose to put your renovation loan on the same term as your home loan, whether it’s 10, or 20 or 30 years - BUT you’ll end up paying much more interest that way. If you can manage, it’s a great idea to put the renovation portion on a shorter term to minimise those interest costs. 

Read our guide to using equity in your home to invest or renovate

If you don’t have enough equity to borrow against your home, or you’re not willing to use your home as security there’s another option. A home renovation loan, separate from your home loan. These are offered by banks, credit unions, and non bank lenders. 

Higher interest rates

Interest rates for home renovation loans are usually much higher than regular home loan top ups because they are generally not secured against your property. The best unsecured rate we could find is from Harmony at 7.99%, while banks charge around 14%. 

Shorter terms

Home loans have terms of 25 or 30 years, but home reno loans are much shorter - usually up to  seven years.

Higher repayments than home loan top ups

Home renovation loans often have much higher repayments than a mortgage top up - in fact, they could be triple or even more. That’s because the interest rate may be doubled, and the term might be 20+ years shorter. 

The rates for these loans are dependent on your creditworthiness

If you’ve got a bad credit score you might be charged an exorbitant interest rate of 25% or more. This could make borrowing prohibitively expensive. 

You’ll only be able to borrow around $50,000 to $100,000

Since the loans are unsecured and have higher interest rates you’ll probably be able to borrow much less. Harmoney, for example, has a loan limit of $100,000 whereas several banks will only lend $50,000 unsecured. It’s difficult to fully renovate most homes with a $50,000-$100,000 budget (unless you’re doing work yourself).

Borrowing with such a high interest rate can be risky. Never rush into taking out such a loan, and always look into all your other options before commiting to anything:

• Investigate whether you’re able to fund the renovations with savings, or in stages with cash on hand. 
• Speak to your bank to see if a mortgage top up is possible. 
• Consider whether your renovations could help you earn an income to help pay back your loan (by renting out a renovated room for example). 
• Be careful not to exceed your budget - if something goes wrong you could be left living in a construction site. 

Most importantly - avoid stretching your budget to avoid home renovations and repay a high interest loan. Take it from a homeowner who’s renovated on a tight budget; if you can’t easily afford a reno, it’s not worth the stress.