Renovation Loans: Redraw vs Personal Loan vs Construction
ADS Team
Author
August 11, 2026
about 1 month ago
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In short: Small cosmetic renovations are usually best funded from redraw or offset at mortgage rates. Larger structural work generally needs a construction loan with staged drawdowns and council approval. A personal loan sits between the two - faster and simpler than a mortgage increase, but at a materially higher rate.
Key takeaways
- Under about $50,000 and cosmetic: redraw or a mortgage increase is usually cheapest.
- Structural work needing approval generally requires a construction loan.
- Personal loans cost more but avoid revaluation and refinancing.
- Lenders value the property as-is, not as-renovated, unless it is a construction facility.
Choosing by scale
| Scale | Best option | Why |
|---|---|---|
| Under $30k cosmetic | Redraw / offset | Lowest rate, no application |
| $30k-$150k cosmetic | Mortgage increase | Cheap, needs equity and revaluation |
| Any size, no equity | Personal loan | Fast, higher rate, no property security |
| Structural / extension | Construction loan | Staged draws, approved plans required |
The equity constraint
A mortgage increase needs equity. On a $900,000 property with a $600,000 loan, at an 80% LVR ceiling you can borrow up to $720,000 - so $120,000 is available before LMI.
The valuation is done on the property as it stands, not as it will be. That is the key structural difference with a construction loan, which values the completed work and releases funds against progress.
What to watch
- Do not over-capitalise. Not every dollar spent returns a dollar at sale; kitchens and bathrooms generally return best.
- Get fixed quotes, not estimates, before setting the budget.
- Hold a contingency of 10-20%. Renovations of older homes uncover problems.
- Check approval requirements early - structural work usually needs council consent, which lenders will ask to see.
Frequently asked questions
Will the bank lend against the renovated value?
Only under a construction loan, where progress payments are released against a fixed-price contract and the completed valuation. A standard increase is assessed on the property as it is today.
Can I use redraw for renovations on an investment property?
You can, but the deductibility of the redrawn portion depends on the purpose. Renovating an income-producing property generally keeps it deductible - confirm with a registered tax agent.
Is a renovation loan a distinct product?
Usually it is a mortgage increase, a construction facility or a personal loan marketed under a renovation label. Compare it against those three rather than treating it as separate.
Related reading
- Construction Loans: How Progress Payments Work
- Personal Loans: Secured vs Unsecured
- LVR Explained: Why 80% Is the Magic Number
Sources
- Building and renovating — ASIC Moneysmart
- Rental property repairs and improvements — Australian Taxation Office
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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