Learn how home equity works and how it can fund your renovation plans.
Explore refinancing and other ways to access funds for improvements.
Understand the pros, cons, and risks of using home equity to renovate.
Plan your renovation budget confidently with expert broker support.
Your home is not just where you live, it can also help fund the improvements that make it even better. If you’ve built up equity over time, refinancing could give you access to funds to renovate, extend, or upgrade your property.
In this guide, we’ll explain how home equity works, the different ways to access it, and what to consider before using it for your renovation goals.
What is home equity and how does it work?
Home equity is the difference between your property’s current market value and the balance still owing on your home loan. It represents how much of your home you truly own.
For example, if your property is valued at $900,000 and your remaining loan balance is $500,000, your total equity is $400,000.
However, lenders typically allow you to access up to 80% of your home’s value (without paying Lenders Mortgage Insurance), subject to credit assessment and lending criteria.
In this case, usable equity would be around $220,000, depending on lender approval and your financial position.
Equity can grow as you repay your loan, and as your property’s value increases over time.
Learn more in our What is home equity? guide.
Refinancing to access your home’s equity
One of the most common ways to unlock equity is by refinancing your home loan. Refinancing involves replacing your existing mortgage with a new one, often with different terms, to access funds for specific goals like renovations.
Here are a few common refinancing options:
1. Cash-out refinance
Cash-out refinance increases your home loan amount to access a lump sum for your renovation.
Example:
If your home is worth $900,000 and you owe $500,000, you could potentially access $220,000 (up to 80% LVR) to renovate, subject to lender approval.
Example only. Results will vary depending on individual circumstances. Fees and charges may apply.
2. Line of credit loan
A line of credit allows you to draw funds as needed, similar to a credit card but secured against your property. Interest applies only to the amount you use, offering flexibility, but discipline is key, as rates can be higher.
3. Construction loan option
If your renovation involves major structural work, a construction loan might suit better. These loans release funds progressively at each stage of the build, helping you manage cash flow throughout the project.
Use our Property Value Calculator to estimate your home’s current value and potential usable equity.
Pros and cons of using home equity for renovations
Using equity to renovate can be a smart way to improve your home and potentially add value, but it’s important to weigh both sides before you decide.
Pros | Cons |
Lower interest rates compared to personal loans | Increases your mortgage balance and repayments |
Potential for property value growth | Longer loan term may mean more interest paid over time |
May avoid taking on new, unsecured loans | Risk of overcapitalising if renovation costs exceed added value |
Other ways to finance your renovation
If refinancing isn’t the right fit, there are other options to explore:
Personal loan: Good for smaller projects or cosmetic upgrades.
Construction loan: Designed for major extensions or rebuilds.
Redraw facility: Use extra repayments you’ve already made on your current loan.
Offset account: Reduce interest while keeping access to funds if needed.
Learn more in our What are the different types of home loans?
What to consider before you access your equity
Before tapping into your home’s equity, it’s important to consider how it could impact your loan, repayments, and future plans.
Increased loan repayments and financial stress
Accessing equity means borrowing more, which can increase your monthly repayments. Ensure the higher repayments still fit comfortably within your budget.
Higher LVR and Lenders Mortgage Insurance (LMI) risk
If drawing on equity pushes your loan-to-value ratio (LVR) above 80%, you may need to pay LMI, which adds to your costs.
Fees and costs to be aware of
Refinancing or increasing your loan may involve valuation fees, discharge fees, or application costs. Compare total costs before proceeding.
Risk of overcapitalising
Avoid overcapitalising by ensuring your renovation cost doesn’t exceed the value it’s likely to add to your property. Overcapitalising can limit your return on investment and reduce future resale appeal.
Tip: Before you draw on your equity, an Aussie Broker can help model scenarios and how it could impact your repayments and long-term goals.
Use our Borrowing Power Calculator to see how accessing equity could affect your capacity.
Managing your renovation budget and scope
Renovations can easily go over budget. Careful planning helps keep your project on track and ensures the improvements add value over time.
Set a clear budget
Breakdown costs into materials, labour, permits, and contingencies. Always allow a buffer for unexpected expenses.
Plan for return on investment (ROI)
Consider which upgrades add the most value, like kitchen or bathroom remodels, and how they compare to the cost.
Avoid cost blowouts
Get multiple quotes, track spending, and confirm payment schedules before starting.
Speak with an Aussie Broker
Thinking about renovating? Using your home equity could be one option, but the right approach depends on your goals and financial situation.
An Aussie Broker can help you:
calculate how much usable equity you may have
compare refinancing or construction loan options
assess how extra repayments could impact your budget
Speak with your local Aussie Broker to explore how your home equity could help you fund your renovation plans.