Top tips to use home equity to renovate

You can release equity from your property by refinancing your home loan and increasing the amount you owe.

The funds you release become available cash that you can use for renovations, and because you're borrowing against your property, the interest rate is typically much lower than a personal loan or credit card. You're not selling or giving up ownership. You're just adjusting your loan to reflect the current value of your home and borrowing a bit more against it.

How equity release works when you refinance

Equity is the difference between what your property is worth and what you still owe on your loan. If your home is valued at $600,000 and you owe $350,000, you have $250,000 in equity. Most lenders will let you borrow up to 80% of your property value without paying lenders mortgage insurance, which means you could access up to $480,000 in total borrowing. After repaying your existing $350,000 loan, that leaves $130,000 you could potentially release.

Consider a homeowner in Morley who bought their property several years ago for $480,000 with a 10% deposit. They've been making repayments steadily, and the loan balance is now $380,000. The property has increased in value to $650,000. At 80% LVR, they could borrow up to $520,000. After refinancing to clear the existing $380,000 loan, they'd have $140,000 available to put toward a kitchen and bathroom renovation. The entire loan gets refinanced at once, so they're not juggling multiple debts or repayment schedules.

Can you release equity if you're not refinancing?

Some lenders allow you to increase your loan amount with your current lender without a full refinance. This is sometimes called a top up. Whether this makes sense depends on your current interest rate, how much your lender will let you borrow, and whether you'd benefit from switching to a different loan product altogether. If your current rate is higher than what's available elsewhere, refinancing to a new lender might save you money while also releasing the equity you need.

Using equity for renovations instead of a personal loan

A personal loan for $100,000 might carry an interest rate around 8% to 12%, while a home loan sits much lower. Over the life of the loan, that difference adds up. Refinancing to access equity means you're borrowing at your home loan rate and spreading repayments over a longer period, which can make the monthly cost more manageable. You'll pay more interest over time if you extend the loan term, but the lower rate and flexibility often make it the right choice for larger renovation projects.

You also get the benefit of a single loan with one repayment. There's no second debt sitting alongside your mortgage, and if you refinance to a lender with an offset account or redraw facility, you can still manage your cash flow and reduce interest along the way.

LVR limits and how much you can borrow

Lenders use your loan to value ratio to decide how much they'll lend. If you want to borrow more than 80% of your property value, you'll usually need to pay lenders mortgage insurance, which can add thousands of dollars to your upfront costs. Staying at or below 80% keeps your borrowing cost lower and your approval more straightforward.

Your usable equity is also affected by how the lender values your property. They'll usually arrange a valuation as part of the refinance process, and if the valuer's figure comes in lower than you expected, the amount you can access will drop accordingly. It's worth having a realistic sense of your property's current value before you apply. You can check recent sales in your area or speak with a local agent to get a ballpark figure.

Approval and serviceability when you increase your loan

When you apply to release equity, the lender will assess whether you can afford the higher repayments. Your income, expenses, other debts, and credit history all factor in. If your financial situation has changed since you first took out your loan, such as a drop in income or new commitments, you might not be approved for the full amount you're hoping to access.

Lenders also look at what you're using the funds for. Renovations are generally viewed as a sensible use of equity because they can add value to the property. If you're planning structural work, an extension, or updates that improve livability, most lenders will support that. They may ask for quotes or a scope of works as part of the application, especially if the amount you're borrowing is significant.

Renovation costs and keeping a buffer

Renovations often cost more than the initial estimate. Materials go up, tradespeople find issues once walls are opened, and timelines stretch. If you're releasing $80,000 for a renovation, consider whether that figure includes a buffer for unexpected costs. Running out of funds halfway through a project leaves you with an unfinished home and limited options to top up again without going through another approval process.

Some borrowers also use part of their released equity to cover holding costs during the renovation, especially if the work affects their ability to live in the property or if they're renovating an investment property and need to manage vacancy periods.

Should you fix or stay variable after refinancing?

Once you refinance and release equity, you'll need to decide whether to lock in a fixed rate or stay on a variable loan. If you're confident rates won't shift much or you want the flexibility to make extra repayments without restrictions, variable might suit you. If you'd rather lock in certainty around your repayments for a set period, a fixed rate gives you that stability. Some people split their loan, fixing part and leaving part variable, which gives them a bit of both.

Your choice depends on your risk tolerance, how long you plan to hold the property, and what your cash flow looks like after the renovation.

Working with a broker to release equity

A mortgage broker can assess your equity position, compare lenders, and help structure the refinance so you're not paying more than you need to. They'll also handle the valuation, application, and settlement process, which can move quickly once everything's in place. If your situation is slightly outside the box, such as self-employment, recent credit issues, or a property in a regional area, a broker can point you toward lenders who are more likely to approve your application.

Call one of our team or book an appointment at a time that works for you.

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