Refinancing for Renovations: How to Choose the Right Loan
Understanding Renovation Financing
Refinancing your home loan to renovate can enhance your living space and increase property value—but choosing the wrong loan could lead to unexpected debt.
The type of renovation you’re planning dictates the financing approach. Understanding your options upfront helps secure the right loan structure for your budget and long-term goals.
Step 1: Know Your Budget
Why Budgeting Matters
Before considering refinancing, establish a clear budget to avoid setbacks.
📌 Underestimating costs can lead to loan rejections or require reapplications, which banks may not favour.
💡 Pro tip: If your estimate is $100,000, consider applying for $150,000 to provide financial flexibility—if affordable.
📞 Speak to CBM Mortgages for expert mortgage advice before applying.
Step 2: Choosing the Right Loan
Line of Credit Loans (Home Equity Loans)
A line of credit loan is ideal for cosmetic upgrades, such as:
🔹 Kitchen or bathroom upgrades
🔹 Interior or exterior painting
🔹 Basic construction improvements
💡 Homeowners can typically borrow up to 80% of their Loan-to-Value Ratio (LVR).
How to Calculate Your Borrowing Power:
✅ Property value: $500,000
✅ Existing mortgage balance: $250,000
✅ Home equity: $250,000
✅ Potential borrowing limit: $250,000 × 80% = $200,000
🚨 Keep in mind: Line of credit loans work like a credit card, accumulating interest on withdrawn funds. If you’re not disciplined with repayments, consult a mortgage broker for a structured repayment plan.
Construction Loans
A construction loan is designed for structural renovations, such as:
🔹 Adding a new room
🔹 Changing the roof
🔹 Major framework modifications
✅ Key advantage: Interest is only calculated on the amount drawn down, not the full loan amount.
💡 Requirements:
📌 Council approval
📌 Fixed-price building contract
📌 Periodic lender assessments to approve loan disbursements
📞 Need help with paperwork? CBM Mortgages can guide you through the process.
Step 3: Broker Advice for Smarter Refinancing
Get Expert Guidance Before Refinancing
A finance broker can:
✅ Determine the best loan structure for your needs
✅ Help maximize borrowing power using existing property assets
✅ Ensure your renovation loan aligns with your financial security
📌 Poorly structured loans can result in higher costs or compromising your property—so expert advice is crucial.
📞 Contact CBM Mortgages today for a tailored refinancing strategy that suits your renovation goals! Read our dedicated page on construction finance here or read another blog post on renovating here
Disclaimer
This article provides general information only and does not constitute financial advice. Always consult a qualified financial advisor or mortgage broker to assess your personal situation before making any financial decisions.
Written by Craig McDonald 14/06/2025
