Refinancing To Renovate

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Last Updated 03/09/2024
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Written by

Luke Carlino

Last Updated 03/09/2024

What changed?

Added expanded content, tables, quote updated sources.

Find out more about how we make money.

View our Privacy Policy.

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What is refinancing? 

Let’s break down this whole refinancing thing in plain talk. It’s moving from one loan setup to another, either with the same bank or a different one. It’s not just about playing musical chairs with your money; it’s about making your current situation work better for you. You’ll still be paying for the same home, just potentially under a new loan. 

If you decide to go with a new lender, they may need to get your property valued since you’re a brand new customer. 

Now, why would you refinance, you ask? Well, there are a few reasons, and it all boils down to making your financial life easier: 

  • Changing your interest rate: Who doesn’t want to pay less? If you can lock in a better rate, not only could it reduce your monthly repayments but it could also mean better rates and new loan features.
  • Speeding things up: Cost of living is tough right now but if you’re in a slightly more comfortable financial position than before, then refinancing lets you pay off that loan quicker. Meaning you’re done with it sooner and paying less in interest in the long run.
  • Switching up your loan type: Maybe you started with a variable-rate loan, but now you’re eyeing the stability of a fixed-rate one. Or you could split your loan with different interest rate types. Having options is always a good thing.  

As for renovating, here’s where it gets interesting – equity. Refinancing can be your way to access extra cash if you’ve built up some value in your home.  

‘One thing I’ve learned through renovating multiple homes is to do extensive research into your potential costs before making your first move. What’s the right joint compound for your plasterboard? Do you need to hire a hammer drill to hang your new barn door? Can you replace that bathroom downlight yourself and save a bit more money? Take your time, be over-prepared and allow yourself a budget that has room for potential extra costs.’

David Rayfield
iSelect Digital Editor

How can refinancing help with renovations? 

Refinancing to renovate becomes a viable option when you’ve built up enough equity in your home. You generally take 80% of your property’s value, subtract what’s left on your existing loan, and voila – that’s your usable equity.  

But how does that help your renovation plans? In plain speak, it allows you to leverage that equity to borrow the funds to cover your renovation costs. You could then place the funds into an offset account to avoid paying interest on it. Because refinancing can come with fees and charges so keep that in mind when weighing up your options. 

Refinancing is a good option to keep you from digging into your savings for that extra bedroom or new roof. It’s a commitment, just like your current home loan, but it gives you the space to think about expanding your home without necessarily all the stress that comes with it. 

How do I know if refinancing to renovate is a good idea?  

Deciding if refinancing to fund your renovation is a good move depends on a few key factors. Let’s break it down, depending on your own situation:

Homeowners with significant equity

As you kick off the refinancing process, you might find your property value has soared. That gap between your home’s value and what you owe is equity, and you can tap into it for your renovation fund 

Homeowners with tight finances

It might be appealing to access more funds via refinancing right now but make sure you’re doing your due diligence with financial planning. Otherwise, you could be eating two-minute noodles for the foreseeable future.

Those anticipating a long term stay

In today’s housing market, if you’re lucky enough to secure a property for the long run then good for you! It will make sense that renovating your lifetime home is on your bucket list.

Those who’ve recently refinanced

As a general rule, it’s not a bad thing to refinance every few years, but it is a good thing to keep an eye on what this process may do to your credit score. Especially if you’re refinancing with multiple lenders.

Homeowners in rising property markets

Interest rates are reliably unpredictable but if you’re lucky enough to see your particular location shoot up in value, you can use it to your advantage when looking for a new loan.

Those in unstable or declining property markets

There’s a reason most of us dread announcements from the Reserve Bank of Australia (RBA) and that’s because the housing market can cause ongoing stress. If this sounds familiar, maybe take the wait and see approach.

Helpful tip:

Keep an eye on the fine print. Refinancing may come with costs like discharge fees on the old loan and application fees on the new one. It’s like paying a toll to cross a bridge, but if the bridge leads to long-term savings and funds for your dream project, it might be a small price to pay.

Debbie Shankar

Former Group Content Manager, Lendi

What are some other ways I can fund my renovations? 

Refinancing isn’t the only way to make those new reno dreams come true. Here are some other options to consider: 

Construction Loan If your renovation plans include major building work, you might want to consider a construction loan. Construction loans require a fixed-price building contract from a registered builder and council-approved plans. Unlike regular home loans, where you receive a lump payment, with a construction loan you draw down what invoices you need to pay as they arrive. This could potentially help you keep costs down, as interest is charged only on the amount used. Construction loans are interest-only until the building work is complete. 
Line of Credit  Ever wish your money could be as flexible as your yoga instructor? That’s where a line of credit steps in. It’s like having a financial buddy that lets you borrow and repay as you please. You only pay interest on what you use.   
Redraw Facility  So, you’ve been diligent, tossing extra cash into your mortgage. The redraw facility is like opening your mortgage piggy bank. You can grab some of that extra dough for your renovations without getting into a whole new loan. 
Savings or Selling Investments Keep it simple and use your own money or sell off some investments as your renovation fund. No loans, no interest – just your hard-earned cash. Just make sure you’re not leaving yourself high and dry for the unexpected stuff life throws at you.   

Where can I find and compare Home Loans? 

We’ve teamed up with Lendi to make your home loan journey a breeze. You don’t need to go on a wild goose chase to find the perfect mortgage. Compare home loans today and get those renovation dreams started! 

Get started on comparing home loans today!

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iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Lendi Group Distribution Pty Ltd (Australian Credit Licence 246786). iSelect provides a referral to Lendi Pty Ltd, a Credit Representative of Lendi Group Distribution Pty Ltd (Australian Credit License 246786). iSelect Mortgages Pty Ltd receives a commission from Lendi Group Distribution Pty Ltd, the licensee for each new customer account created and for each home loan submitted through this service.