Refinancing To Renovate

What is refinancing?

Home Loan Refinancing means taking out a new loan on your property and using it to pay out your current loan. This may involve moving to a new lender, or negotiating a better rate with your current lender – it really depends on who is offering the best deal and features for your needs.

Apart from potentially saving money, refinancing may allow you to use the equity in your home to pay for renovations and improvements. Generally, the more equity you have, the better, as borrowers with a low loan-to-valuation ratio (LVR) may be able to negotiate a more favourable rate than those looking to borrow 90 to 95 per cent of the value of their property.

Use our Refinancing Calculator to compare your home loan against another offer now.

Are there other ways to fund my renovations?

Refinancing isn’t the only way you can use your home loan to help cover the cost of home improvements.

Other options may include:

• 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. Smaller, cosmetic renovations are less likely to require a large injection of funds, as they don’t involve structural changes. A line of credit home loan allows you to draw up to 80 per cent of the equity in your property.

What’s the best option for me?

When you’re comparing home loans, it’s important to review any upfront and ongoing fees or costs associated with exiting your current loan and moving to a new one.

This may include fees for settlement, mortgage registration, loan establishment and service, and possibly exit fees and charges. You might also need Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80 per cent of the property’s value.

In most cases, the long-term benefits of refinancing should outweigh the upfront costs. Nevertheless, it’s important to remember that while you might have negotiated a lower rate of interest, by using extra funds for your renovation you will have increased the amount that you owe the bank.