Refinancing for Renovations – How to Use Your Home Equity to Upgrade Your Home

Whether you’re planning a kitchen upgrade, a new outdoor area or a full extension, renovations cost money — and many homeowners use refinancing to fund the project. Unlocking equity, lowering your rate or restructuring your loan can help you renovate sooner and more affordably.

This guide explains how refinancing for renovations works, what lenders look at and how to choose the best funding approach for your goals.

1️⃣ What Does It Mean to Refinance for Renovations?

Renovation refinancing is when you:

Refinance your home loan to access your available equity.
Use the released funds to pay for renovation works.
Potentially secure a better rate or loan structure at the same time.

It’s one of the most cost-effective ways to finance improvements because home loan rates are usually much lower than personal loan or credit card rates.

2️⃣ How Much Equity Do You Need?

Your usable equity is based on:

Your home’s current market value.
Your outstanding loan balance.
Your lender’s maximum LVR (usually 80%).

A typical formula is:

Property value × 80% – current loan balance = usable equity

A broker can order a valuation to confirm exactly how much you can access.

3️⃣ What Renovation Costs Can You Finance?

Refinancing can fund a wide range of projects, including:

Kitchen or bathroom upgrades.
Outdoor areas and landscaping.
Extensions or additional bedrooms.
Solar and energy efficiency upgrades.
Structural renovations requiring council approval.

You can release equity as a lump sum or set up a construction-style drawdown depending on the size of the project.

4️⃣ Option 1: Simple Equity Release

This is the most common method for small-to-medium renovations.

You refinance your loan and withdraw equity as cash-out.
You get the funds upfront and control the spending.
No progress payments or staged valuations required.

Best for projects under ~$150,000 that don’t require major structural changes.

5️⃣ Option 2: Construction Loan via Refinance

For larger projects, lenders may require a construction loan structure:

Funds are released in stages as work progresses.
A fixed-price builder contract is usually required.
Lenders may revalue the property “as if complete”.

This approach protects both you and the lender — and usually suits projects over ~$150k.

6️⃣ What Lenders Look At for Renovation Refinances

Approval depends on:

Your income: Can you service the increased loan amount?
Your credit history: On-time payments help a lot.
Your equity: Enough to keep your LVR under the lender’s limit.
Your renovation plans: Builder quotes, contracts or cost estimates.

The clearer and more detailed your renovation plan, the smoother the process.

7️⃣ Should You Use Cash-Out or a Construction Loan?

Each approach suits different types of projects:

Cash-out: Faster, simpler, more flexible for smaller upgrades.
Construction loan: Better for structural or high-value renovations.

A broker can help choose the option that keeps costs low and approvals smooth.

8️⃣ Pros and Cons of Refinancing for Renovations

Pros

Lower interest rates compared to personal loans.
Access to larger amounts of funding.
Potential to secure a better home loan rate at the same time.
Increases the value and liveability of your home.

Cons

Your loan balance increases.
You may need a valuation or updated financials.
Large projects require more documentation.

Overall, renovation refinancing is one of the most cost-effective ways to upgrade your home.

9️⃣ Tips to Keep Your Renovation on Budget

Keep your costs under control by:

Getting multiple builder quotes.
Setting aside a buffer for unexpected delays or variations.
Choosing materials early to avoid price changes.
Reviewing progress payments before signing.

Renovations rarely go exactly to plan — preparation helps.

🔟 The Smartest Way to Fund Your Renovation

A broker can help you:

Unlock the right amount of equity.
Choose between cash-out or construction funding.
Compare lenders that support renovation finance.
Structure your loan for long-term financial health.

Thinking of renovating?

Book a free renovation finance session with the Loan Location team. We’ll show you the smartest way to fund your project through refinancing.