Renovation Loans – all you need to know

. 3 min read

Nowadays, more and more people are getting into the flipping business. Basically, they are buying run-down houses at discounted prices, renovating them and then selling them off at higher prices, generating a handsome profit.

As simple as it sounds, it is anything but and in this segment, we aim to simplify an oftentimes complicated step of the process: getting financing. There are different types of financing when it comes to renovation and they are suited for different circumstances.

Want to know more about different mortgage loans? Check out our previous segment on Different Types of Mortgage Loans: A Comparison.

1. Refinancing your existing home loan

If you have enough equity built up in your existing mortgage, you could consider refinancing with a bigger loan that can cover the cost of renovation. Having acquired a bigger loan, a good approach would be to place the renovation funds into an offset account. This way, you can avoid paying interest until you draw funds out of the account.

An alternative would be to use a line of credit. With this you could basically access funds as you need it and interest is charged on the balance owing on the account.

Note that refinancing is almost the same as taking out a new mortgage, so it is imperative that you shop around for the best rate. At LoanDolphin, we have lenders bid to give you the most competitive rate, so if you are looking to refinance, be sure to get started early!

2. Apply for a Construction Loan

If you do not have enough equity in your mortgage to borrow the necessary amount for your renovation, construction loans could be for you.

A construction loan is determined based on your property value after renovation. Its structure is such that loans are drawn down progressively as construction invoices come in. The loan adopts an interest only structure for a certain period of time, before reverting back to principle-and-interest.

3. Personal Loans

Another option would be to take out personal loans. In most cases, this is not advisable because of the high interest rates. Typically these rates could go from 6% to more than 18%, depending on the product and the consumer.

Personal loans come in two forms - secured and unsecured. Secured loans are backed up by an asset such as property or a term deposit. As such, they are much cheaper than unsecured personal loans.

4. Credit Card

Credit cards are a simple method of obtaining funds for renovation. It is as simple as taking out a card to make transactions. This convenience however, usually come at a high price, with interest rates normally being at 17%. That said, there are some cards that offer rates under 10%.

Some considerations to take before incurring credit card debt is the size of the renovation costs as well as the projected renovation time frame. If it is a lot of money over a long period of time, a modest renovation could end up dear.

5. Overdraft Loans

Depending on the nature of the renovations, overdraft loans could be for you. In essence, an overdraft would be attached to your nominated account and will allow you to draw up to the credit limit. It will come into effect once you have passed the limit. Rather than paying interest on the entire amount, you only pay interest on the money you use.

Overdraft loans are more appropriate for smaller ‘weekend renovations,’ as it is an instrument that is more adapted for flexibility.

6. Fix and Flip Loans

This type of loan is created by lenders specifically for purposes of renovation. The loan term is usually one year. Hence, whilst it gives you hard money you need to invest in the property, the renovation is limited to a certain time frame.


In need of a more competitive mortgage rate? In the Loan Dolphin marketplace, lenders now bid to give you the best loan. Call a Loan Dolphin representative now on 1800 855 919 for a quick chat.