Refinancing to renovate: a smart move?

What is refinancing?

Refinancing means replacing your existing home loan with a new one, usually to get better terms—such as a lower interest rate, reduced monthly payments, or more suitable loan features. When it comes to renovations, homeowners often choose to refinance to unlock the equity built up in their property and use those funds to improve their home.

‍

When does refinancing for renovations make sense?

1. You have built-up equity

If your home has significantly increased in value since purchase, or you’ve paid off a good portion of your mortgage, you may be able to access that equity. Lenders typically allow you to borrow up to 80% of your home’s current market value, less what you still owe.

Example: If your home is valued at $800,000 and you owe $500,000, you could potentially access up to $140,000 in equity: ($800,000 x 80%) – $500,000 = $140,000.

2. Interest rates are favourable

If current mortgage rates are lower than your existing loan, refinancing could reduce your monthly repayments even after increasing your loan balance to include renovation costs.

3. You're planning value-adding renovations

Some improvements—like kitchen and bathroom upgrades, extensions, or energy-efficient upgrades—can add significant value to your home. Refinancing may make sense if your renovation is likely to increase your property’s resale value or rental potential.

‍

How to refinance for renovation

Step 1: Estimate your renovation costs

Get quotes from contractors or a builder to understand how much you need. Be realistic and include a buffer for unexpected expenses.

Step 2: Calculate your available equity

Use your lender’s tools or get a property valuation to determine how much equity you can access. Remember, lenders usually limit borrowing to 80% of your home's value without requiring Lenders Mortgage Insurance (LMI).

Step 3: Compare lenders and loan options

Don’t assume your current lender offers the best deal. Shop around for the best rates, features, and flexibility. Look for:

• Low interest rates
  
  
• Offset accounts
  
  
• Extra repayment options
  
  
• Minimal fees

Step 4: Apply to refinance

Once you've selected a lender, submit your application. Be prepared to provide:

• Proof of income and expenses
  
  
• Details of the proposed renovation
  
  
• Building plans and contractor quotes (for larger projects)

Step 5: Access the funds

Funds are typically released as a lump sum or via a construction drawdown facility, depending on the lender and the scale of the renovation.

‍

When it might not be the right move

• You’ve only recently bought your home and haven’t built up much equity
  
  
• Your financial situation has changed (e.g., lower income or increased debt)
  
  
• Your home’s value has decreased
  
  
• The renovation is cosmetic and doesn’t require major funding
  
  
• You plan to sell in the short term and might not recoup the cost
  
  

Alternatives to refinancing

If refinancing doesn’t suit your circumstances, consider:

• Personal loans: Quick to access, but typically higher interest rates
  
  
• Line of credit: Flexible, interest-only repayments initially
  
  
• Redraw facility: Use extra repayments already made on your existing loan
  
  
• Government grants or schemes: Especially for sustainable or accessibility-focused renovations
  
  

Refinancing your mortgage to fund a home renovation can be a strategic move—particularly if it enhances your property’s value and your quality of life. However, it’s essential to crunch the numbers, understand the risks, and seek financial advice if you’re unsure. A well-planned renovation funded through refinancing can offer a double win: a more comfortable home and a stronger financial future.