Choosing a renovation loan
Cosmetic reno, structural reno, knock-down rebuild — three reno types, three lending paths. How to pick the right one.
Cosmetic renovations (under $50K)
Paint, flooring, kitchen handles, lighting — works that don't require a builder's licence or council approval. The cleanest funding path is usually a top-up on your existing home loan (if you have equity) or a redraw if the funds are sitting there. No special construction-loan structure needed.
Structural renovations ($50K-$300K)
Kitchen replacement, new bathroom, deck addition, internal restructure. These need a licensed builder and usually a fixed-price contract. You can fund via equity release if you have it; otherwise a construction loan works but adds complexity.
Construction loans pay the builder in stages (slab, frame, lock-up, fixing, completion) against progress invoices. Interest is charged only on the funds drawn. Your monthly payments are interest-only during construction, then convert to P&I on completion.
Knock-down rebuild or major addition (>$300K)
Full construction loan with stage payments. Council approval (DA) plus building contract required. Most lenders also want a fixed-price contract — variable contracts are scrutinised. The valuer assesses the "as if complete" value to confirm the end LVR makes sense.
Budget 15-20% contingency on top of the contract sum. Variations (the "while we're at it" additions) routinely blow contracts by that amount.
References
- ASIC MoneySmart — Choosing a home loan — Construction and renovation loan structures
- ATO — Capital works deductions — Tax treatment of structural renovation costs on investment property
- Australian Building Codes Board — Construction standards that affect lender valuation
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