How to Refinance Home Loan for Renovation

Renovating your home can be an exciting yet costly project. Whether you’re looking to add a new kitchen, extend your living space, or modernise outdated features, funding these improvements is a key consideration. One popular way Australians finance renovations is by refinancing their home loan. Refinancing involves replacing your existing mortgage with a new one—potentially with better terms—while accessing your home's equity to cover renovation costs.

For many homeowners, refinancing can lead to lower interest rates, more manageable repayments, and greater financial flexibility. However, it’s essential to understand the refinancing process, the costs involved, and whether it’s the right option for your situation. This guide will walk you through everything you need to know about refinancing your home loan for renovations in Australia.

Understanding Home Loan Refinancing for Renovations

Home loan refinancing is the process of switching from your current home loan to a new one—either with your existing lender or a new lender. This can be done to secure a lower interest rate, access additional loan features, or increase your borrowing amount.

When refinancing for a renovation, homeowners can leverage the equity built up in their property. This means borrowing against the value of the home, using the extra funds for upgrades or improvements. Unlike taking out a separate renovation loan, refinancing allows you to keep all your debt in one place and potentially benefit from lower interest rates compared to personal loans or credit cards.

Types of Home Loan Refinancing for Renovations

There are different refinancing options available depending on your renovation goals:

• Equity Release / Cash-Out Refinance: This option allows you to borrow additional funds by leveraging your home’s equity. It’s a popular choice for homeowners undertaking major renovations.
• Home Loan Top-Up: If you have an existing home loan with your lender, you may be able to request a top-up—essentially increasing your mortgage amount to cover renovation costs.
• Construction Loan: If your renovation involves significant structural changes, some lenders offer construction loans, which release funds progressively as the work is completed.
• Personal Loan vs. Refinance: In some cases, if you require a smaller amount for minor upgrades, a personal loan might be a simpler alternative to refinancing.

It's a good idea to speak to a refinancing mortgage broker such as EE Mortgages, to help you decide which option is best for you, and secure the lowest interest rates.

Step-by-Step Guide to Refinancing for Renovation

If you’ve decided to refinance your home loan for renovation, follow these steps:

1. Assess Your Renovation Costs – Obtain quotes from builders and tradespeople to estimate how much funding you’ll need.
2. Check Your Current Loan Terms – Review your mortgage agreement to understand any fees or restrictions associated with refinancing.
3. Compare Lenders & Loan Products – Research different lenders to find competitive interest rates and features that suit your needs. Speaking to a mortgage broker will make this process much easier. There are no costs involved when you work with EE Mortgages as they are paid commission by the lender.
4. Apply for Refinancing – Submit an application with financial documents, including income verification, home valuation reports, and renovation plans.
5. Approval & Valuation Process – The lender will assess your financial standing and may conduct a valuation to determine how much equity is available.
6. Settlement & Fund Disbursement – Once approved, the new loan will replace the old one, and funds will be made available for renovation work.

To streamline the process, you can consult a refinancing mortgage broker like EE Mortgages. They are 100% free of charge for you as a client (they are paid a commission by the lender), and they specialise in dealing with banks regarding refinancing for renovations. When you work with EE Mortgages, you greatly increase your chances of approval, so reach out via the contact form below.

Reasons to Refinance for a Renovation

There are several reasons Australians choose to refinance their home loan for renovations, including:

• Lowering Interest Rates: If market conditions have improved since you first took out your loan, refinancing may offer a lower interest rate, reducing overall repayment costs.
• Accessing Home Equity: Over time, as you pay off your mortgage and property values increase, you build equity in your home. Refinancing allows you to unlock this equity and use it for renovations.
• Consolidating Debt: Some homeowners choose to refinance as a way to combine their mortgage with other debts, such as personal loans or credit cards, into a single repayment.
• Increasing Property Value: Renovations can significantly boost the value of your home, making refinancing a strategic investment for future resale.

How Will Refinancing for Renovation Affect My Mortgage Repayments?

Refinancing your home loan to fund renovations will have a direct impact on your mortgage repayments. When you refinance for renovations, you're effectively borrowing more money, which increases the size of your loan. As a result, your monthly repayments will typically increase to cover the additional amount you've borrowed. The exact amount will depend on factors like the loan size, your new interest rate, and whether you extend the loan term.

One benefit of refinancing is that you may be able to secure a lower interest rate, especially if market conditions are favourable or your financial situation has improved. However, if you choose to extend the loan term to keep monthly payments lower, you could end up paying more interest over the life of the loan, even with a lower rate. This is because spreading the debt over a longer period allows interest to accumulate over time.

It’s important to run the numbers and compare different scenarios—whether it's shortening or extending your loan term—to understand how refinancing for renovations will affect your total repayment amount. Consulting a financial advisor or mortgage broker can also help determine the best strategy for managing your repayments and securing the best deal possible.

Costs and Considerations When Refinancing

Before refinancing, it’s essential to be aware of potential costs:

• Refinancing Fees: Lenders may charge application fees, valuation fees, and exit fees if you switch lenders.
• Lenders Mortgage Insurance (LMI): If borrowing more than 80% of your home’s value, you may need to pay LMI.
• Long-Term Financial Impact: Extending your loan term can result in higher total interest paid over time.
• Government Grants & Incentives: Some homeowners may qualify for government schemes, such as the First Home Owner Grant (FHOG) for renovations or energy efficiency incentives.

Finding the Right Lender for Refinancing

Selecting the right lender is key to ensuring you get the best refinancing deal. While many banks and lenders offer refinancing options, it can be challenging to navigate the terms, interest rates, and hidden fees.

Speaking to a mortgage broker can simplify the process. Eden Emerald Mortgages is a trusted expert in refinancing home loans for renovations in Australia. Our team can assess your financial situation, compare loan products, and negotiate with lenders to secure the best deal for your needs. A mortgage broker can also provide guidance on government incentives and ensure you avoid costly refinancing mistakes.

Speak to a Mortgage Broker for Free

If you need assistance or have some questions about refinancing your home for renovations, fill out the form below and an expert will call you back. They can even help you through the whole refinancing process entirely online if you prefer.

What Are the Downsides of Refinancing for Renovation?

Refinancing your home loan to fund renovations can have some potential downsides. By carefully considering these, you can determine if refinancing is the best option for funding your home renovations. Always consider the long-term financial impact, not just the immediate benefit of accessing funds for renovation.

Reduced Future Borrowing Power: Taking on more debt through refinancing can affect your ability to borrow in the future. Since you are increasing your loan amount, your debt-to-income ratio may rise, making it harder to secure additional loans for other financial needs. Lenders may view you as a higher risk if your outstanding loan balance becomes too large.

Risk of Foreclosure: If your financial situation changes—such as a loss of income or unexpected expenses—you might struggle to meet the higher repayments associated with a larger mortgage. This increases the risk of defaulting on your loan, which could eventually lead to foreclosure. It's essential to be confident in your ability to manage the larger loan over the long term.

Upfront Costs: Refinancing comes with various upfront costs, including valuation fees, legal fees, and lender’s mortgage insurance (LMI) if your equity falls below 20%. These costs can add up quickly and eat into the funds you were hoping to use for your home improvements. It's important to account for these extra expenses when calculating whether refinancing is worth it.

Alternatives to Refinancing For Renovation

If you do not have enough equity to refinance your home, or you decide that it isn’t the right option for you, there are other ways you can fund your renovation project:

• Personal Loans: A personal loan can be a faster, more flexible option for smaller renovation projects. However, these loans often come with higher interest rates than home loans, so it’s essential to compare offers.
• Construction or Renovation Loans: Some banks offer specific loans for home improvements. These loans usually disburse funds as the renovation progresses and may have stricter terms but can provide a more structured way to finance larger projects.
• Credit Cards: For minor renovations or purchases, using a credit card with a competitive interest rate or one that offers rewards can be a convenient option. However, this can quickly become costly if you are unable to pay off the balance.
• Government Grants: Depending on your location and the type of renovation, you may qualify for government grants or incentives for eco-friendly improvements, which can help reduce out-of-pocket costs.

Ready to Start the Refinancing Process?

If you’re considering refinancing your home loan for renovations, the best way to start is to speak with a refinancing mortgage broker, like Eden Emerald Mortgages. They are completely free of charge to you (they are paid a commission by the lender), and they will assess your current financial situation, determine your eligibility for refinancing, calculate your borrowing capacity, and help you choose the best option based on your renovation goals. Leave a message below and a refinancing expert will call you back.

Conclusion

Refinancing your home loan for renovations is a viable option for Australian homeowners, and many banks are willing to support this process if the borrower meets their criteria. While refinancing offers benefits such as accessing equity and potentially lowering interest rates, it’s important to weigh the risks and additional costs involved. Before making any decisions, it’s best to speak with a professional to ensure refinancing aligns with your financial goals and renovation plans. If refinancing isn't the right fit, consider alternative financing options like personal loans or credit cards that may better suit your project.