Proven Tips to Use Home Equity for Renovations

How Refinancing to Release Equity Works

Refinancing to release equity means increasing your home loan balance to access the difference between what you owe and what your property is worth. Lenders typically allow you to borrow up to 80% of your property's current value without paying lender's mortgage insurance, though some will go higher with additional premiums.

Consider a homeowner in Glen Waverley who purchased several years ago for $900,000 with a $720,000 loan. The property is now valued at $1,200,000, and the outstanding loan sits at $650,000. At 80% LVR, the maximum borrowing capacity is $960,000. Subtracting the existing loan leaves $310,000 in available equity. After setting aside funds for refinancing costs and a buffer, they access $280,000 to renovate the kitchen, bathrooms, and outdoor entertaining area. The renovation cost $260,000, with the remainder covering loan establishment fees and valuation costs. The updated layout and modern finishes added significant appeal to the property, particularly in an area where family homes with indoor-outdoor flow are in demand.

Why Glen Waverley Homeowners Choose Equity for Renovations

Property values in Glen Waverley have grown consistently due to proximity to The Glen Shopping Centre, quality schooling options including Glen Waverley Secondary College, and the Monash Freeway. Many homeowners who bought in the area five to ten years ago now hold substantial equity.

Using equity through refinancing avoids the need to liquidate savings or investments. It also sidesteps higher-interest personal loans or credit cards, which can carry rates well above home loan rates. Renovation costs are rolled into a mortgage that is repaid over a longer term, reducing the immediate financial strain compared to paying contractors upfront from cash reserves.

A second advantage is that renovations funded through equity can increase the property's market value. Extensions, bathroom updates, and landscaping improvements often return a portion of the outlay when the property is eventually sold or revalued. In suburbs with high demand for updated family homes, the uplift can be particularly pronounced.

What Lenders Assess When You Apply to Release Equity

Lenders evaluate your income, existing debts, and the property's current value. The loan-to-value ratio is the primary constraint. Most lenders cap lending at 80% without mortgage insurance, though some specialist lenders and certain products allow up to 90% or 95% with additional premiums.

Your borrowing capacity also depends on your ability to service the larger loan. Lenders apply a debt-to-income ratio and an assessment rate that sits above the actual interest rate you'll pay. If your income has increased since you took out the original loan, or if you've paid down other debts, you may find your capacity has improved.

The property valuation is ordered by the lender and must support the new loan amount. In some cases, recent renovations or market movements mean the property is worth more than the homeowner expected. In others, the valuation comes in lower, reducing the amount that can be accessed. This is particularly relevant in pockets of Glen Waverley where older homes on larger blocks may be valued differently than recently updated properties on similar-sized parcels.

How Much Equity Can You Access for Renovations

Available equity is the difference between your property's value at the allowed LVR and your current loan balance. At 80% LVR, a property valued at $1,300,000 supports a loan of $1,040,000. If you owe $700,000, you can access up to $340,000 before accounting for costs.

Not all of that equity needs to be drawn. Some homeowners access only what the renovation requires, minimising the increase in repayments. Others take a slightly larger amount to cover contingency costs or related expenses such as landscaping, new appliances, or temporary accommodation during construction.

Keep in mind that refinancing involves valuation fees, discharge fees from your current lender, application fees, and sometimes legal costs. These can total several thousand dollars and should be factored into the amount you request. If you're planning to use the funds for a staged renovation, discuss with your broker whether a construction loan structure or a line of credit might offer more flexibility than a single lump sum.

Fixed or Variable Rates After Refinancing

Once you refinance to release equity, you'll choose between a fixed rate, variable rate, or split loan. Variable rates offer flexibility to make extra repayments without penalty and allow you to redraw funds if your loan permits. Fixed rates lock in your repayment amount for a set period, which can help with budgeting during the renovation phase when expenses are less predictable.

Some homeowners split their loan, fixing a portion to protect against rate rises and leaving the rest variable to maintain offset and redraw features. This approach works particularly well if you're holding funds in an offset account to manage renovation payments over several months.

If you're planning further borrowing in the near term, such as purchasing an investment property or funding a business venture, a variable loan or split structure may provide the flexibility you need without incurring break costs later. For those looking at broader options, our refinancing page outlines additional scenarios where loan structure plays a role.

Tax Implications of Using Equity for Renovations

Interest on funds borrowed to renovate your primary residence is not tax deductible. The loan is secured against your home, but the purpose of the borrowing determines deductibility. Renovations that improve your own living space do not generate assessable income, so the interest expense cannot be claimed.

If you later convert the property to an investment, the portion of the loan used for renovations may become deductible at that point, but only from the date of conversion. The Australian Taxation Office requires clear records of how borrowed funds were used, so keeping invoices and a separate account for renovation expenses is worthwhile if future use changes are possible.

Capital gains tax is another consideration. Renovations that increase the property's value will affect the capital gain if you sell. Your cost base includes the original purchase price plus qualifying costs such as stamp duty and legal fees, but renovations are treated as a separate improvement. The increased value will be reflected in the sale price, and the gain is calculated from the original cost base, not the renovated value. For owner-occupied properties, the main residence exemption generally applies, but if you've used part of the home for income-producing purposes or moved out before selling, partial CGT may apply.

When to Consider Alternative Funding Options

Refinancing to access equity is not always the right choice. If your current home loan has a particularly low rate or favourable features, moving to a new lender may cost more in the long term despite the funds released. In these cases, topping up your existing loan with your current lender can be a more efficient option, though not all lenders offer this.

If you have limited equity or your income has decreased, you may not meet serviceability requirements for the increased loan. Personal loans or a line of credit secured against the property might be viable alternatives, though rates are typically higher. For smaller renovation projects, using savings or a low-rate personal loan can avoid the costs and time involved in refinancing.

Homeowners with investment properties may also consider accessing equity from those assets rather than their primary residence, particularly if the interest will be tax deductible. Our investment loans page covers scenarios where this structure makes sense. For those juggling multiple properties or business interests, a broader review of your borrowing capacity can clarify which asset to draw from.

How Long the Refinancing Process Takes

From application to settlement, refinancing to release equity typically takes four to six weeks. The timeline depends on how quickly the valuation is completed, how responsive your current lender is with the discharge, and whether any issues arise during credit assessment.

You'll need to provide payslips, tax returns if you're self-employed, and recent loan statements. The lender will order a valuation, which usually takes one to two weeks. Once the valuation is received and the loan is formally approved, the new lender will request a payout figure from your current lender and prepare settlement documents.

If you're under time pressure to start renovations, discuss timing with your broker before applying. Some lenders process applications faster than others, and pre-approval can give you certainty on the amount available before you commit to contractor quotes. For those looking to move quickly, our loan health check service can identify whether your current loan structure supports a top-up or if a full refinance is required.

Call one of our team or book an appointment at a time that works for you to discuss your renovation plans and how much equity you can access without overextending your budget.

Frequently Asked Questions