If you own a home in Bayswater and want to renovate, you may be able to refinance your home loan and borrow against the equity you have built up. It can be a sensible way to fund the work, as long as you understand the costs and the trade-offs first.
What Does It Mean to Refinance to Access Equity for Renovations?
Refinancing to access equity means replacing your current loan with a new one that is larger, then using the extra amount to pay for your renovation. Equity is the gap between what your home is worth and what you still owe.
Lenders usually measure this using a property valuation. They then decide how much they will lend against your home, depending on your deposit or equity position, your income and your lender's policy. Your borrowing capacity also matters, because the new loan has to fit your budget as well as your property's value.
If you want a broader view of how switching loans works, our refinancing page covers the basics.
How Much Equity Can You Use for a Renovation?
The amount you can use depends on your home's valuation, your current loan balance and the lender's maximum lending limit. Many lenders set that limit as a percentage of the property's value, and the exact figure varies between lenders.
A valuation is the starting point. If your home is valued higher than you expected, you may have more room to borrow. If it comes in lower, your options may shrink. A broker can help you check this before you formally apply, so you are not surprised later.
Your income and expenses also count. Even with plenty of equity, a lender needs to be satisfied that you can afford the higher repayments.
Should You Top Up Your Loan or Refinance?
A top-up with your current lender is quicker, while refinancing to a new lender gives you the chance to review your whole loan. Both can release equity, so the right choice depends on your current loan terms.
If your current loan has a rate or features that no longer suit you, refinancing lets you fix that at the same time as you borrow more. If your loan already suits you, a top-up may be enough. The trade-off with refinancing is that it can involve fees, such as discharge or application costs, and it takes more paperwork. Your lender will tell you which fees apply.
A loan health check is a good way to compare both paths before you decide.
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Book a chat with a Finance Broker at Home Step Finance today.
A Renovation Refinance Example With Real Numbers
As an illustration, borrowing an extra $60,000 over 25 years at an illustrative rate of 6.75% p.a. adds roughly $414 a month to your repayments. That figure is an estimate only, and your actual rate will depend on your lender and circumstances.
Consider a Bayswater couple who want to update their kitchen and bathroom. Their builder quotes $60,000. They have an existing loan, and a valuation shows they have enough equity to borrow the extra amount. The lender also confirms their income can support the higher repayments.
They work with a broker to compare lenders. They choose to refinance rather than top up, because their current loan has no offset account and they want one to hold their renovation funds while the work is done. The new loan covers the extra $60,000. Using an illustrative rate of 6.75% p.a., the extra repayment is roughly $414 a month, which they check against their budget before going ahead.
The outcome is a renovated home and a loan that fits their needs. The cost is a larger loan, and more interest paid over time, which they accept for the added comfort and value in their home.
Why Renovation Costs Should Be Paid Off Faster Than the Loan Term
Renovation debt added to a 25 or 30 year loan can cost more in interest than the work might suggest, because you pay interest on it for a long time. Making extra repayments is one way to reduce this.
If your new loan has a redraw facility or an offset account, you can pay more when you can and still reach those funds if you need them. Some features carry a fee or a slightly higher rate, so it is worth asking what they cost. You can use a repayment calculator to test different amounts before you commit.
What If Your Fixed Rate Is About to End?
If your fixed rate period is ending, it can be a natural time to refinance and borrow for renovations, because you can review your loan at that point. Breaking a fixed loan early can lead to break costs, so timing matters.
When your fixed term finishes, many loans move to a variable rate, and this may be higher or lower than other options. Our fixed rate expiry page explains what to look out for. Checking your options a few months ahead gives you time to compare, rather than rushing.
Should You Talk to a Local Broker in Bayswater?
A local broker can compare lenders for you, explain the costs and handle the paperwork, so you can focus on your renovation plans. Our mortgage broker in Bayswater page has more about how we help local homeowners.
If you are building rather than renovating, our construction loans page may suit you better.
Call one of our team or book an appointment at a time that works for you. We will go through your equity, your repayments and your plans, and explain every step in plain language.
Frequently Asked Questions
Can I refinance to pay for renovations?
Yes, you may be able to refinance to a larger loan and use the extra amount for renovations. It depends on your home's valuation, your income and the lender's policy.
What is the difference between a top-up and a refinance?
A top-up increases your loan with your current lender and is usually quicker. A refinance moves your loan to a new lender, which lets you review the rate and features but may involve extra fees.
How much would an extra $60,000 cost in repayments?
At an illustrative rate of 6.75% p.a. over 25 years, an extra $60,000 adds roughly $414 a month. Your actual figure will depend on your lender and loan terms.
Can I refinance when my fixed rate ends?
Yes, the end of a fixed term is often a good time to review your loan. Refinancing before it ends can lead to break costs, so check these first.
