An energy-efficient renovation may improve comfort, reduce household running costs and make a property more appealing to some future buyers. However, there is no guarantee that an eco-friendly upgrade will increase the property’s value by more than it costs to install.
If the improvements form part of a substantial structural renovation or extension, CBM Mortgages can help you consider whether construction finance, refinancing, a home-loan increase or another funding structure may be suitable for the project.
What Is an Eco-Friendly Renovation?
An eco-friendly renovation aims to improve the way a home uses energy, water or other resources.
The work can range from relatively modest improvements, such as draught sealing and efficient lighting, to major projects involving insulation, glazing, solar generation, batteries, electric appliances or changes to the home’s orientation and design.
Common energy-efficient improvements include:
- Ceiling, wall and underfloor insulation
- Draught sealing
- Double or high-performance glazing
- External shading
- Solar panels
- Home batteries
- Efficient reverse-cycle heating and cooling
- Heat-pump hot-water systems
- Induction cooking
- Efficient lighting and appliances
- Water-efficient fittings
- Rainwater collection and reuse
- Passive-solar design improvements
The most useful combination depends on the home’s age, construction, climate, orientation, existing energy performance and household needs.
Can an Eco Renovation Increase Property Value?
Potentially, but the result depends on the property and the local buyer market.
Energy-efficient homes may appeal to buyers who value lower running costs, improved thermal comfort and reduced reliance on purchased electricity. Features such as solar panels, effective insulation, efficient heating and cooling, and good natural light can also help distinguish a property from comparable homes.
However, an individual renovation should not be treated as a guaranteed investment return. The effect on value can depend on:
- The suburb and local buyer preferences
- The property’s existing condition
- The quality of the installation
- Whether the improvement suits the home
- The age and remaining life of the equipment
- The home’s overall design and presentation
- Available documentation, warranties and energy information
- How much of the renovation cost a future buyer is willing to recognise
If resale value is an important part of the decision, consider obtaining advice from a local real estate agent or appropriately qualified property valuer rather than assuming the project cost will be fully recovered.
Which Energy-Efficient Renovations Should You Consider?
The best place to start is usually the home’s existing building envelope and major sources of energy use.
Insulation
Insulation can reduce unwanted heat transfer through ceilings, walls and floors. The appropriate product and installation method depend on the home’s construction and the area being treated.
Before installing or replacing insulation, consider ventilation, moisture management, electrical safety and any existing damage or hazardous materials.
Draught Sealing
Gaps around doors, windows, vents and other openings can allow conditioned air to escape.
Draught sealing can be a relatively accessible improvement, but permanent ventilation openings and appliances requiring airflow must not be incorrectly sealed. Obtain qualified advice where gas appliances, fireplaces or complex ventilation requirements are involved.
Windows, Glazing and Shading
High-performance glazing and well-designed shading can help manage heat gain and heat loss.
Replacing windows can be expensive, so compare the expected benefit with alternatives such as:
- Window films
- Secondary glazing
- Effective curtains or blinds
- External awnings
- Roof or pergola shading
- Sealing gaps around existing frames
The appropriate solution depends on window orientation, exposure, climate and the condition of the existing frames.
Solar Panels
A rooftop solar system may reduce purchased electricity where the roof, orientation, shading and household usage pattern are suitable.
Before proceeding, examine:
- The roof’s condition and expected remaining life
- Available unshaded roof area
- The proposed system size
- Daytime electricity consumption
- Export limits and network requirements
- Product and installation warranties
- The installer’s accreditation and licensing
- Any planned future electrification or battery installation
A larger system is not automatically the best financial choice. The design should reflect the property, network connection and household energy profile.
Home Batteries
A battery can store electricity generated by solar panels for later use. Whether the investment is suitable depends on the battery cost, usable capacity, electricity tariffs, household consumption and available solar generation.
Consider the expected warranty period, battery degradation, installation location, compatibility with the inverter and any proposed virtual power plant arrangement.
Efficient Heating and Cooling
Heating and cooling can represent a significant portion of household energy use.
Improving insulation, draught control and shading before selecting equipment may reduce the capacity required. Efficient reverse-cycle air conditioning can provide both heating and cooling, but correct system design and sizing remain important.
Heat-Pump Hot Water
A heat-pump hot-water system uses electricity to transfer heat rather than generating all heat directly through an electric resistance element.
Suitability depends on factors such as installation location, household hot-water demand, local climate, noise considerations and the timing of electricity use.
Efficient Appliances and Induction Cooking
Replacing an appliance before the end of its useful life may not always produce the best financial outcome. However, when replacement is already required, energy-efficiency ratings and whole-of-life running costs can form part of the decision.
If moving from gas to induction cooking or electric hot water, check whether electrical-board or wiring upgrades are required and include those costs in the renovation budget.
Water-Efficient Improvements
Water-efficient fittings, rainwater tanks and appropriate garden design may reduce mains-water consumption.
Before installing a rainwater system, consider available roof catchment, tank location, plumbing requirements, intended uses and relevant council or building requirements.
How Should You Plan an Energy-Efficient Renovation?
A clear plan can help prevent isolated upgrades from working against each other.
For example, new heating and cooling equipment should ideally be selected after considering insulation, draught sealing and window performance. Otherwise, the equipment may be sized for a home that is subsequently made more efficient.
Before finalising the scope, consider:
- The home’s current problems and energy use
- Which rooms are uncomfortable and when
- The age and condition of major appliances
- Necessary repairs that should occur before upgrades
- Roof condition before installing solar
- Electrical capacity and switchboard requirements
- Planning or building approvals
- Installer qualifications and licences
- Product warranties
- Available rebates or incentives
- The complete project cost
- How the work will be funded
An energy assessment or advice from an appropriately qualified building, energy or design professional may help prioritise improvements for a complex or substantial project.
How Can You Finance an Eco-Friendly Renovation?
The appropriate funding structure depends on the size and type of project, your available cash, property equity, borrowing capacity and existing home loan.
Possible approaches may include:
- Cash savings
- Available redraw
- A home-loan increase
- A separate home-loan split
- Refinancing
- Construction or renovation finance
- A personal loan
- An eligible green loan or energy-upgrade product
- Government rebates, discounts or finance programs where available
Using Savings
Using savings avoids taking on additional debt and paying interest. However, do not overlook the importance of retaining an appropriate emergency buffer and contingency for unexpected renovation costs.
Using Redraw
If your home loan has an available redraw facility, you may be able to access additional repayments previously made to the loan.
Using redraw increases the balance on which interest is calculated. Check the loan terms, available amount and effect on your repayment strategy before proceeding.
Increasing the Home Loan
Where sufficient usable equity and borrowing capacity are available, a lender may allow an increase to the existing home loan or create a separate loan split.
The lender may require a new property valuation and will assess income, expenses, liabilities, credit limits and the purpose of the funds.
Although secured home lending may have a lower interest rate than unsecured borrowing, spreading the renovation cost over a long mortgage term can substantially increase the total interest paid.
Refinancing
Refinancing may allow a homeowner to change lenders, restructure the mortgage and access approved funds for renovations.
Before refinancing, compare:
- The existing and proposed interest rates
- Application and valuation costs
- Discharge fees
- Any fixed-rate break costs
- Loan features
- The new repayment amount
- The proposed repayment term
- The total interest cost
For more information about this option, see CBM Mortgages’ refinancing service.
Construction or Renovation Finance
For a substantial structural renovation, extension or integrated building project, the lender may assess the work using construction-style finance.
The lender may require plans, approvals, a fixed-price building contract, detailed specifications, a proposed progress-payment schedule and a valuation based on the expected completed property.
Funds may then be released progressively as approved stages are completed, rather than as one unrestricted lump sum.
Green Loans and Energy-Upgrade Products
Some lenders and finance providers offer products intended for eligible energy-efficient upgrades.
Eligibility, approved products, interest rates, fees, loan limits and repayment terms vary. A product described as “green” should still be assessed on its total cost and conditions rather than its name alone.
Government Rebates and Incentives
Federal, state and local energy programs can change over time. Support may be limited to specific products, households, installers or geographical areas.
Before relying on a rebate or discount:
- Confirm the current eligibility criteria
- Check whether approval is needed before installation
- Confirm the product and installer requirements
- Check whether the allocation is still available
- Understand when and how the benefit is provided
- Avoid signing a contract based solely on a sales representative’s description of a government program
How Much Equity Can You Access for Renovations?
Home equity is the difference between the property’s value and the amount owed against it. However, total equity and usable equity are not the same thing.
The lender will determine how much additional borrowing may be available after considering:
- Its valuation of the property
- The current loan balance
- The resulting loan-to-value ratio
- Your income and expenses
- Existing debts and credit limits
- The proposed loan term
- The purpose of the funds
- The lender’s current credit policy
Having equity does not guarantee that the lender will approve an equivalent amount of additional borrowing. Serviceability and the lender’s assessment remain essential.
Example of Using Equity for an Eco Renovation
Assume a lender values a property at $1,000,000 and the existing home-loan balance is $500,000.
The owner has $500,000 in total equity, but this does not mean the full $500,000 is available to borrow. The lender will apply its preferred maximum loan-to-value ratio and complete a serviceability assessment.
If the owner requested an additional $100,000 for eligible renovation work, the total lending would increase to $600,000, producing a 60% loan-to-value ratio based on that valuation.
The lender would still need to approve the borrower, purpose and proposed structure. Valuations and lending policies can vary, and the renovation budget should not be committed before the finance is confirmed.
Will an Eco Renovation Pay for Itself?
Some upgrades may reduce household energy or water costs, but the payback period depends on the installation cost, household usage, tariffs, maintenance and product life.
An improvement can also provide non-financial benefits, including:
- More consistent indoor temperatures
- Reduced draughts
- Improved comfort
- Lower exposure to future energy-price increases
- Reduced reliance on gas or grid electricity
- Improved resilience where suitable systems are installed
- Greater appeal to some future buyers or tenants
When assessing a project, consider both the expected running-cost benefit and the improvement in how the home functions.
Questions to Ask Before Financing an Eco Renovation
- What problem is the upgrade intended to solve?
- Should repairs or building-envelope improvements occur first?
- What is the complete installed cost?
- Are electrical, structural or approval costs excluded from the quote?
- Is the product suitable for the property and household?
- What licences and accreditation should the installer hold?
- What warranties apply to the product and installation?
- Is a rebate or incentive currently available?
- Must approval be obtained before work starts?
- How will the project be funded?
- What will the repayments and total interest cost be?
- How quickly do you intend to repay the renovation borrowing?
- What evidence supports any claimed energy savings or value increase?
Planning the Renovation and Finance Together
Energy-efficient improvements work best when they are planned around the property, household and complete renovation scope.
Before signing contracts, establish the total project cost, confirm the relevant technical and approval requirements, check any rebate conditions and make sure the proposed finance structure fits your household budget.
CBM Mortgages can help you compare ways to fund eligible improvements, including options involving available equity, refinancing and construction or renovation finance.
Frequently Asked Questions
Can an eco renovation increase my property’s value?
Can I use home equity to fund energy-efficient improvements?
What is a green loan?
Are rebates available for energy-efficient renovations?
Do I need construction finance for an eco renovation?
Planning an energy-efficient renovation?
CBM Mortgages can help you compare ways to fund eligible improvements, including options involving home equity, refinancing and construction finance.
Disclaimer: This article provides general information only and does not constitute personal financial, credit, legal, building, energy or property advice. Lending policies, interest rates, valuation requirements, program eligibility and government incentives can change. Energy savings and property-value outcomes depend on the property, household, installation and market. Consider your circumstances and obtain advice from appropriately qualified professionals before entering into a building, installation or finance contract.
