Refinancing to Renovate
How to fund a renovation by tapping your home loan, the different options, and which suits a small update versus a major build, explained by an Adelaide mortgage broker.
Renovating is one of the most common reasons people refinance or restructure their home loan. Rather than reaching for a separate high interest loan, you can often fund renovations using the equity in your home, at home loan rates. The right structure depends on the size and type of project, from a simple loan increase for a cosmetic refresh to a staged construction loan for a major rebuild. Getting that structure right from the start keeps the cost down and the project moving.
Funding a smaller renovation
For cosmetic or moderate renovations, the simplest path is often increasing your existing loan or redrawing available funds, drawing on the equity you have built. This keeps everything in one loan at a home loan rate, and avoids the higher cost of a personal loan or credit card for the work.
- Loan increase or top up against your equity.
- Redraw of extra repayments you have already made.
- Usually no staged payments or builder sign off.
- Home loan rates rather than personal loan rates.
Funding a major renovation or rebuild
For structural work, extensions or a knock down rebuild, a construction loan is usually more appropriate. It releases funds in stages as the work progresses, and you generally pay interest only on what has been drawn so far.
- Funds released in stages as the build progresses.
- Interest usually charged only on what is drawn.
- Lender needs plans and a fixed price building contract.
- Valuations often carried out at each milestone.
Will the renovation add value?
Both you and your lender benefit when a renovation adds more value than it costs. Kitchens, bathrooms and adding usable living space tend to return well, while highly personalised or purely cosmetic changes may not. It is worth thinking about resale value even if you plan to stay for years, because a value adding renovation protects and grows your equity rather than just spending it.
The interest cost of renovating with equity
Funding a renovation through your home loan is still borrowing, so you pay interest on the amount you add, usually across the remaining loan term. A renovation that adds lasting value can be well worth that cost, while spreading a modest cosmetic update across decades of interest may not be. As with any equity use, weigh what the work adds against what the borrowing costs over time.
How lenders treat renovation funds
How a lender releases and assesses renovation money depends on the size and type of work. A small loan increase is straightforward, while a staged construction facility involves valuations and progress checks at each milestone. Matching the structure to the project from the start avoids delays and surprises midway through the job.
Choosing the right structure
A simple rule of thumb: cosmetic and moderate work usually suits a loan increase or redraw, while structural work, extensions and rebuilds usually suit a construction loan. The cost of the project, the equity you have, and your borrowing capacity all feed into the decision, which is exactly the kind of thing worth mapping out before you commit to a builder.
Plan your renovation finance properly
Answer a few quick questions and we can structure the right option for your project across a panel of more than 70 lenders.
Check Your Options
A few quick questions, no obligation.
What is your goal?
Tell us a bit more about the plan
How do you earn your income?
How is your credit score?
This helps us match you to the right lender from the start.
Last step. Where should we send your options?
Your information is private and we will never share it.
By submitting, you agree to be contacted by one of our team of licensed mortgage brokers. No obligation. No spam.
You're all set.
We've received your details. One of our friendly brokers will reach out within 1 business day to help guide you through your options.
Renovation Refinance: common questions
What is a renovation refinance?
A renovation refinance means refinancing or topping up your home loan to fund renovations, usually by drawing on the equity you have built up. It lets you pay for improvements without using savings or higher interest finance.
How can I fund a renovation using my home loan?
The common ways are an equity release or top up on your existing loan, a refinance to a new lender that frees up equity, or a construction style loan for major structural work that pays out in stages.
How much equity do I need to renovate?
Enough that your loan, including the renovation funds, stays within the lender limit, commonly around 80 percent of your home value to avoid insurance. Your income also has to support the larger loan.
What is the difference between cosmetic and structural renovations for finance?
Cosmetic work, like paint, kitchens, or flooring, does not change the structure and is usually funded by a simple equity release. Structural work, like extensions or removing walls, often needs a construction style loan that releases funds in stages.
Do I need a construction loan to renovate?
Not for most cosmetic or moderate renovations, which a simple equity release covers. You generally need a construction style loan for major structural work, where the lender releases funds in stages and may value the home as if complete.
How do lenders value a home for a renovation?
For a simple equity release they value the home as it is now. For a major renovation funded as a construction loan, they may value it as if complete, based on your plans, to lend against the higher finished value.
Will renovating add enough value to be worth borrowing?
Sometimes, but not always. Some renovations add more value than they cost, while others add lifestyle benefit without a matching value lift. It is worth weighing the likely value gain against the borrowing cost before you commit.
Should I do a loan top up or a full refinance to renovate?
A top up with your current lender is simpler and often quicker. A full refinance to a new lender takes more effort but can free up more equity or secure a better rate at the same time. The best choice depends on your lender and goals.
What does it cost to refinance for a renovation?
Costs can include a valuation, loan or application fees, government registration fees, and a discharge fee if you leave your current lender. A top up usually costs less than a full refinance.
Should I renovate first then refinance to access the new value?
Sometimes. If you can fund the work first, refinancing afterwards lets the lender value the improved home, which can release more equity. But you need the funds to renovate up front, so it does not suit everyone.
Can I refinance to renovate if I am self-employed?
Yes. Self-employed borrowers can refinance or top up to fund renovations, with income evidenced through tax returns or alternative documentation if returns are not finalised. The equity and serviceability tests still apply.
How much can I borrow to renovate?
It depends on your usable equity and your income. For a standard top up, your home value sets a ceiling, commonly around 80 percent of value minus your loan. A construction style loan may lend against the higher finished value.
How are renovation funds paid to the builder?
For a simple equity release, the funds are usually available as a lump sum that you manage. For a construction style renovation, the lender releases payments to the builder in stages as the work is completed and verified.
Can I refinance to renovate an investment property?
Yes. You can release equity to renovate an investment property, which can lift its rent and value. The interest on funds used for the investment is generally tax deductible, though your accountant should confirm your position.
How long does a renovation refinance take?
A straightforward top up with your current lender can take a couple of weeks. A refinance to a new lender, or a construction style renovation with staged drawdowns, usually takes longer, depending on valuation and lender timing.
Can I use my home loan to pay for renovations?
Yes. Many people fund renovations by increasing their loan or redrawing equity, at home loan rates rather than higher personal loan rates. Larger structural projects are usually funded with a construction loan instead.
Do I need a construction loan to renovate?
Not for cosmetic or moderate work, which a loan increase or redraw usually covers. Structural work, extensions and rebuilds generally need a construction loan that releases funds in stages.
Will renovating add value to my home?
It can, especially kitchens, bathrooms and added living space, but not every renovation returns its cost. Thinking about resale value, even if you plan to stay, helps protect your equity.
How are construction loan funds paid out?
In stages tied to your builder reaching milestones such as slab, frame, lock up and completion. You generally pay interest only on the amount drawn so far during the build.
Is it cheaper to renovate with my home loan or a personal loan?
The home loan rate is usually far lower, but because the debt can sit on your mortgage for decades, the long run interest can add up. A value adding renovation often justifies it, a small cosmetic one may be better paid off quickly.
General information only. This page provides general information about home loans and is not financial or credit advice, a quote, or a guarantee, and your personal circumstances have not been considered. Lending policies, interest rates, fees and eligibility vary by lender and change over time. Always confirm your own situation with a licensed mortgage broker or lender before acting. Ross McFarlane (Credit Representative 526725) is an authorised Credit Representative of Australian Associated Advisers Pty Ltd t/a Keylend, Australian Credit Licence 392169.