Costs are one of the major concerns Australians face when beginning a renovation project, especially when considering the growing inflation rate alongside current labour and resource shortages.
If funding is getting in the way of your dream renovations, you could consider refinancing your home loan for that much-needed cash injection.
In this guide, we discuss whether refinancing may be the right option for you to fund your renovations, taking you through the steps and considerations you need to refinance your home loan.
Refinancing your home loan is one of the best solutions to funding your planned renovations, as it provides you with better financial security and access to more competitive interest rates than a personal loan would.
Consequently, this could help you save thousands of dollars in costly repayments and avoid additional financial stress that comes with property renovations.
Refinancing is the process of switching your mortgage with a lender (existing or new) to better meet your financial needs. In the context where you need to obtain funds for a renovation, you can refinance to withdraw existing equity locked in your current home loan.
Home equity is the difference between your property's current market value and the mortgage's outstanding balance. In simple terms, you can think of equity as the part you own outright in your home.
When calculating your usable equity, we recommend using 80% of your property's value and subtracting it from the remaining balance on your home loan. In return, you can ensure that you won't be overstretching yourself financially and avoid paying Lenders Mortgage Insurance.
In turn, refinancing allows access to your home equity, which can be accordingly withdrawn and put towards your renovations. There are several ways to do this, but the two most common methods are:
A cash-out refinance involves increasing the loan amount on your mortgage with a new or existing lender. Accordingly, by increasing the loan amount, you can cash-out your existing home equity and put it towards renovations.
While this may increase the time it takes to pay off your mortgage, refinancing to unlock equity often provides much more competitive interest rates than personal loans or credit cards.
Like cash-out, refinancing to a line of credit loan allows you to access usable home equity that can be put towards your renovations.
However, where cash-out refinances provide one lump-sum payment, a line of credit loan has a pre-approved limit (determined on your equity) and allows for multiple withdrawals.
When refinancing to a line of credit loan, you essentially open a new account that holds your usable equity. Similar to a credit card, this amount can be accessed whenever and however for your renovations.
We recommend this option if you're planning long-term renovations, as it provides more flexibility with multiple withdrawals rather than one big payout.
In this scenario, Eleanor bought a property a few years ago for $400,000, whose value has now increased to $600,000. With $100,000 left on her home loan, her equity is about $360,000 after allowing for an 80% loan-to-value ratio.
Eleanor has chosen to refinance her home loan through a line of credit. She discusses with her current lender about a new loan, but finds their offer of a lower interest rate is not within the vicinity of her intended rate.
After research, Eleanor finds a home loan offering her desired interest rate and signs on after filling out the necessary paperwork. This allows her to leverage her $360,000 equity and gain a line-of-credit with her bank that she can access with a new card to pay for her home renovations.
Refinancing your home loan to access funds for a renovation can take a lot of preparation and will require you to have a closer understanding of your current financial situation.
To help with this process, we've broken down specific elements of what you will need during each phase of your refinancing journey.
Before you apply to refinance, you will need to reflect on your current financial circumstances and ensure that you can provide the following:
Effectively, this will help improve your chances of approval when looking to refinance and avoid getting trapped in additional costs, such as LMI or higher-interest rates.
If you are unsure if you meet the requirements, it is best to check with your financial advisor or broker. Or, head over to or guide that explains when to refinance your home loan.
After ensuring that your financial circumstances and home loan are in good condition, you will need to provide several documents during the application process:
For more information, head to our guide that explains everything you need to know on how to refinance a home loan.
After applying, you need only wait until you hear back from your lender. If you applied for a cash-out refinance, your lender would deposit your usable equity in your nominated bank account or release the funds into an offset account (if selected).
Meanwhile, in the context of a line of credit home loan, you can expect your lender to provide a new account that may come with a debit card to access your usable equity.
As with any financial decision, there are plenty of pros and cons that you will need to consider before refinancing your home loan for a renovation.
The accessibility of refinancing for renovation can make it a good idea for most Australians looking to renovate. Anyone can begin the process with a trusted lender, a secure new mortgage in mind, and a significant amount of preparation.
You can even check with your current lender if they will offer competitive rates or incentives to keep your business, helping you save in the long run.
However, the refinancing process is not reversible, so you should always check that you have followed the appropriate guidelines and fully understand your financial situation.
Before refinancing, you should ask yourself the following questions:
If refinancing doesn’t seem like a viable option for your own financial circumstances, you can consider the following alternatives:
Joust is an online platform that grants users access to a broad range of home lenders and brokers. It is the perfect platform to consider refinancing your existing home loan as the Instant Match feature places your mortgage on the market for these lenders to bid with competing offers and a lower interest rate.
Australians will find their budget goals placed as Joust’s highest priority, making the process of refinancing for home renovation a breeze.
After creating a home loan profile, either online or through the Joust app, lenders will only be able to see your loan requirements and ability to repay the loan; protecting your personal details until you find a lender you can trust.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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