Renovation Refinancing: Refinance Your Home Loan To Renovate

Rates and fees last updated on

buildingBe the 27% of homeowners that refinance their mortgage properly for renovation

Almost three in four (73%) of homeowners think it would be challenging to refinance their home loan to renovate their home according to a survey of more than 1,000 homeowners commissioned by finder.com.au.

If you're looking to begin renovating a property, it's important that you read on to find out the basics of how to do it. Not only will we show you how to refinance to fuel your renovations, we'll also compare some of the lowest mortgage interest rates on the market to get you started.

Refinancing to renovate is the most popular reason for refinancing according the Mortgage and Finance Association of Australia (MFAA) and can be a great way to add value to your property. Typically there are really only two choices to make when you refinance to renovate. They are a line of credit loan or a construction loan.

Flowchart showing the process of refinancing to renovate

What are line of credit home loans?

A line of credit home loan, also known as an equity loan, allows borrowers to draw on the equity they have in their property. A common credit limit on these home loans is 80% of your Loan-to-Value Ratio (LVR). To calculate your maximum borrowing, subtract your current loan balance from your property value and then multiply this figure by 80%.

Line of credit loans can obviously only be used in situations where there is an available amount of equity to use. When a line of credit is approved, it is like a giant credit card attached to your home loan with an upper limit of your equity amount. It can be drawn on for any type of expense you like including investments, cars and of course, cosmetic renovations. Interest-only starts accumulating when equity is drawn down.

There is a huge amount of freedom with a line of credit home loan. This means they are suited to people who are disciplined financially as spending money on frivolous purchases could be tempting to some.

Line of credit home loan comparison

Rates last updated October 24th, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
4.99%
$0
$0 p.a.
90%
Borrow up to 90% LVR and pay no application fee with this line of credit home loan package.
4.09%
4.12%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest-only rate and no application fee.
5.86%
$0
$550 p.a.
90%
A line of credit home loan with no application fee.
6.37%
$600
$150 p.a.
90%
Access your equity with a low variable rate and low fees.
5.76%
$0
$550 p.a.
90%
Pay no application fee and enjoy a low interest rate.
4.47%
$0
$350 p.a.
80%
Tap into your home's equity to seize investment opportunities as they come.
5.66%
$0
$550 p.a.
90%
Borrow against your equity for investments and other purposes and get a competitive interest rate.
5.67%
$600
$150 p.a.
90%
A low interest rate home loan with a low ongoing fee.
5.64%
$0
$395 p.a.
90%
Low rate equity home loan with no application fee.
6.42%
$600
$10 monthly ($120 p.a.)
95%
Access a line of credit home loan through Westpac.
5.51%
$600
$10 monthly ($120 p.a.)
85%
A competitive line of credit loan from Heritage Bank.
5.27%
$0
$375 p.a.
90%
Enjoy a discounted rate on your equity loan and fee discounts.
6.38%
$600
$12 monthly ($144 p.a.)
80%
A flexible line of credit with low minimum loan amount.
5.84%
$0
$395 p.a.
90%
Low rate line of credit loan with flexible repayment options.
4.67%
$0
$349 p.a.
90%
Use the equity in your home to make your next investment move for your future.
6.02%
$600
$10 monthly ($120 p.a.)
90%
Consolidate your debt and build wealth with this line of credit loan.
3.89%
$0
$15 monthly ($180 p.a.)
80%
A low rate line of credit with low ongoing fees.
4.54%
4.58%
$0
$0 p.a.
90%
A line of credit home loan with a redraw facility and no application or ongoing fees. Borrow up to 90% LVR.
4.29%
$0
$15 monthly ($180 p.a.)
80%
Enjoy a low rate and low ongoing fees on your line of credit home loan.

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What are construction home loans?

Construction loans are loans specifically suited to the purpose of building a property. Construction loans are particularly useful as the total borrowing amount is not based on the property's current value, but on a predicted value at completion. Borrowers therefore have access to vast sums.

To qualify for a construction loan, council-approved building plans and a fixed-price building contract must be in place.

Your lender will appoint an independent valuer who will assess your builder's work at each construction stage before the lender pays an installment. The beauty of this is that you have extra help on your side to force your builder to complete work at a high standard. In addition, interest-only accumulates on money drawn down — which is good for your back pocket.

Once construction is complete, borrowers can often refinance to the loan of their choice, or roll the loan over to the lenders' standard variable interest home loan.

Compare construction loans

Rates last updated October 24th, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
4.02%
4.02%
$0
$0 p.a.
80%
Build your home or investment property and enjoy fee-free redraw.
5.24%
5.37%
$600
$8 monthly ($96 p.a.)
95%
Available for construction. You can link your home loan to a deposit or transaction account and get 100% offset account.
3.79%
3.86%
$0
$0 p.a.
80%
Get a low-rate construction loan with an LVR up to 80%.
6.44%
$600
$250 p.a.
90%
A flexible home loan with an option for construction.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
A principal and interest home loan with a construction option.
5.59%
$0
$395 p.a.
90%
An equity loan with the flexibility to pay your loan off at a frequency which suits you.
5.73%
5.89%
$350
$10 monthly ($120 p.a.)
90%
Build a home or investment property and take advantage of interest-only repayment options.
5.64%
$0
$395 p.a.
90%
Enjoy the flexibility of an equity loan when building your home.
5.03%
5.09%
$200
$0 p.a.
95%
Borrow up to 95% LVR to build your next property.

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How do I choose between the two?

Line of credit loans can only be used for cosmetic renovations, while construction loans can only be used for structural renovations. Therefore, you need to think carefully about the type of renovations you are making and whether the scope of the renovations will creep into structural changes from the initial plans.

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What loan is best for cosmetic renovations?

A line of credit loan is generally suitable for renovations to change aesthetics. This includes renovations which only tidy up a property's appearance, rather than alter the structure, are considered cosmetic.

Cosmetic renovation examples include:

  • Installing a new kitchen, bathroom & flooring
  • Giving the interior or exterior walls a lick of paint.

What loan is best for structural renovations?

Construction loans are generally suitable for structural renovations. Structural renovations are major endeavours that involve council-approved building plans and a licenced builder working in a fixed-price building contract arrangement. These are time-intensive projects that involve a level of expertise and certification above your average DIY renovator.

Structural renovations include:

  • Altered or replaced foundations
  • Removal of exterior or interior supporting walls
  • New or replaced electrical wiring
  • New or replaced major plumbing.

It is important to keep in mind when planning your renovations, what you are planning to do. Remember to do your due diligence and research all options available to you. For more information, leave a comment and we'll endeavour to help you.

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What will a renovation job cost me?

While researching about how to finance a renovation job is a good idea, it's also smart to know how much a job can cost you. The table below shows the different national costs associated with renovating your property.

It shows the costs of three different renovation price points:

  • Basic - A renovation using the cheapest designs and materials available
  • Standard - A job where middle range designs and materials are used
  • High - The most expensive materials, designs and labour costs are used for this type of project
RenovationBasic CostStandard CostHigh Cost
Bathroom$2,0962$38,696$54,804
Bedroom$8,948$13,786$18,612
Kitchen$23,264$42,017$69,738
Room renovation$10,514$16,586$22,648
Garage (extension)$15,131$28,076$39,987
Interior Plastering$25,220$28,897$32,536
Laundry$9,172$15,466$21,752
Ensuite$16,618$25,544$31,692
Attic conversion$52,464$66,073$91,597
Floorboard restoration$10,856$27,689$44,518
Roofing (tiled)$18,860$23,690$28,492
Room extension (ground level)$38,475$62,767$83,865

Source: finder.com.au, Australian Institute of Architects

Tips for refinancing to renovate

  • Work out how much equity you have by getting a valuation done and find out the maximum Loan To Value (LVR) required for your home loan
  • Your LVR will help you determine how much money you have available to draw on
  • Set a benchmark for value: research what the media house/unit price is in your area and look at properties recently sold in your area
  • Rule of thumb: don't spend more than 10% of the median property value on renovations. Though this would depend on the conditions of the property
  • Work out how much you're eligible to borrow, use this calculator
  • And this calculator to help you figure out the cost of mortgage repayments

Frequently asked questions

If the property is finished, then the answer is yes. A valuer will look at the finished and make an assessment based on that. You may also want to use the services of a mortgage broker during this time.
Yes, topping up is another way you can finance renovations. Your lender will reassess your application to determine if you're eligible for a top up.
You can't shift non-deductible debt, such as debt from a owner occupier loan into a deductible loan, such as your investor loan. Since your home loan is not for investment, you won't be able to claim the deduction for the portion that came form your investment loan.
You can access any additional repayments you may have made to finance your renovations, but there may some risks in doing this. You'll need to consider if the funds are better places in your home loan and reducing the amount of interest you're required to pay, versus the impact of your renovations.
The answer to this question will depend on your personal and financial situation. While renovations can help bring up the value of your property, it may not necessarily increase the price of rent or tenants available. It's best to speak to your buyer's agent regarding this.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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2 Responses

  1. Default Gravatar
    GraceSeptember 6, 2017

    What type of loan suits me?
    I own my own home $380,000.
    Im wanting to buy land $200,000 max & build smaller home $180,00.
    I have $20,000 in savings But on a disability pension.
    Only $400 a month to spare.
    Can u recommend an loan approach?
    Can i use current home equity &,
    $20,000 to cover insurances & monthly repayments during construction,
    And sell current home during last 10 weeks of contruction?
    Would this approach help qualify me for a land purchase & construction?

    Thank you

    • Staff
      DanielleSeptember 7, 2017Staff

      Hi Grace,

      Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.

      I won’t be able to say which would be the best option for you, but you are on the right page. You may review and compare the offers available on the table. Once you have selected one, you may proceed by clicking the green “Go to Site” button. You may also refer to this page to find out more about getting a loan on a disability pension or by using your home equity. You may also seek the advice of mortgage expert through here.

      I hope this helps.

      Cheers,
      Danielle

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