Everything You Need to Know About Refinancing for Renovations

Accessing Equity Through Refinancing: How It Works

When you refinance to access equity, you're increasing your loan amount based on the current value of your home and using that additional borrowing to fund renovations. The difference between what you owe and what your home is worth becomes available capital, provided you maintain enough equity to satisfy lender requirements.

Most lenders will allow you to borrow up to 80% of your property's value without paying lenders mortgage insurance. If your home is valued at $450,000 and you owe $280,000, you have $170,000 in equity. At 80% lending, you could potentially access around $80,000 for renovations while keeping your loan within that threshold. Going beyond 80% is possible, but it attracts additional costs that can make the exercise less worthwhile.

Consider a homeowner in Shepparton East whose weatherboard home has increased in value since purchase. They owe $310,000 on a property now valued at $480,000. They want to add a second bathroom and update the kitchen, with quotes totaling $65,000. Through a refinance, they increase their loan to $375,000, staying comfortably under the 80% threshold and avoiding mortgage insurance. The additional funds go directly toward the renovation, and the updated home not only suits their family but also lifts the property's value further.

The mechanics are straightforward. Your lender or broker arranges a valuation, the bank assesses your income and expenses to confirm you can service the higher loan amount, and once approved, the additional funds are released at settlement. You don't need to sell, and you don't need to drain your savings.

Why Homeowners in Shepparton Choose This Option

Renovating through equity release appeals to families who've been in their home long enough to build meaningful equity but don't want to move. Shepparton's established suburbs like Mooroopna and South Shepparton have seen steady value growth, particularly for homes on larger blocks. Many of these properties were purchased years ago at prices well below current values, leaving owners with substantial equity they can put to work.

The alternative is a personal loan or using savings. Personal loans for renovations typically carry higher interest rates than a home loan refinance, often several percentage points above what you'd pay on a mortgage. Savings, meanwhile, might be earmarked for other goals or kept as a buffer. Refinancing keeps your borrowing costs lower and leaves your cash reserves intact.

Location plays a role too. Shepparton's housing stock includes many older homes with solid bones but dated layouts. Adding a second living area, extending the main bedroom, or modernising the kitchen can transform how a home functions without the disruption and cost of relocating. For families with kids settled in local schools or work tied to the region, staying put and improving the property makes practical sense.

The Valuation: What Lenders Look For

Your lender will organise a property valuation to determine how much equity you can access. The valuer assesses your home's current market value based on recent sales of comparable properties, the condition of your home, and any improvements already made. In Shepparton, this might mean comparing your home to similar sales in your street or neighbouring pockets like Kialla or Riverside.

The valuation outcome directly affects how much you can borrow. If the valuer's figure comes in lower than expected, the amount available for renovations shrinks. If it comes in higher, you may have more flexibility. Valuations are typically conservative, so don't assume your home is worth what the top sale in your street achieved unless the properties are genuinely comparable.

Some homeowners are surprised when the valuation doesn't match their expectations, particularly if they've been following online estimates. A formal bank valuation is different from an appraisal or an automated estimate. It's based on actual sales data and a physical or desktop inspection, and it's what the lender relies on to approve your borrowing. If you're planning a renovation that will increase the property's value, that future value doesn't count. The valuation reflects what your home is worth now, before the work is done.

Serviceability: Proving You Can Afford the Higher Loan

Increasing your loan amount means increasing your repayments, and lenders need to be satisfied you can manage that. Serviceability is the term used to describe your ability to meet loan repayments based on your income, expenses, and existing debts. Even if you have plenty of equity, you won't be approved if your income doesn't support the higher borrowing.

Lenders assess your household income, regular expenses, and any other financial commitments like car loans, credit cards, or investment property debt. They also apply a buffer, testing whether you could still afford repayments if interest rates rose. This buffer varies between lenders but is typically several percentage points above the actual rate you'll pay.

In our experience, clients underestimate how much weight lenders place on everyday spending. Childcare costs, school fees, and even regular subscriptions can reduce your borrowing capacity. Before applying, it's worth reviewing your spending and clearing any debts that aren't essential. A loan health check can identify whether your current loan structure is helping or hindering your serviceability.

Timing the Refinance: When to Start the Process

Start the refinance process before you commit to builders or tradespeople. Approval can take several weeks, and you'll need a formal valuation, income verification, and a credit check before funds are released. If you've already signed contracts or made deposits, you're working against a deadline that may not align with how long refinancing takes.

If your current loan has a fixed rate that's about to expire, that's often an ideal time to refinance. You can access equity and switch to a new rate structure without paying break costs. For those coming off a fixed rate, refinancing to release equity and lock in a new fixed or variable rate can be done in a single transaction.

Don't wait until you're halfway through the renovation and running out of funds. Refinancing is a forward-planning exercise, not a rescue option. Get your finance sorted, know exactly how much you have to spend, and then move forward with quotes and contracts.

Choosing Between Fixed and Variable After Refinancing

Once you've refinanced and accessed equity, you'll need to decide whether to fix your rate, stay variable, or split between the two. A variable rate gives you flexibility to make extra repayments and access redraw or offset features, which can be useful if you want to pay down the higher loan amount over time. A fixed rate locks in your repayment amount, which helps with budgeting, particularly if you're managing renovation costs alongside your mortgage.

Some borrowers split their loan, fixing a portion for certainty and keeping the rest variable for flexibility. This approach works well if you want the option to make lump sum repayments when you have spare cash but still want protection against rate rises on the bulk of your borrowing. The right structure depends on your circumstances, and it's worth talking through the options with a broker who understands how each feature affects your situation.

If you're refinancing to access equity, don't overlook the features your new loan offers. Offset accounts, redraw facilities, and the ability to make extra repayments without penalty all influence how quickly you can reduce your debt after the renovation is complete.

What Happens to Your Loan After the Renovation

Once the renovation is finished and the funds are spent, your loan continues as normal. Your repayments will reflect the higher loan amount, and the term will typically reset unless you've negotiated otherwise. If you had 22 years remaining on your original loan, refinancing might push that back to 30 years unless you adjust your repayments to match the original schedule.

Many homeowners don't realise their loan term has extended until they review their paperwork. If you want to keep your loan on the same trajectory, increase your repayments to reflect the shorter term or make regular extra payments. A mortgage structured with an offset or redraw lets you park extra funds against the loan without locking them away, which keeps your interest costs down while maintaining access if needed.

The value of your property should also increase after the renovation, which strengthens your equity position. A well-planned kitchen or bathroom renovation typically adds more value than it costs, particularly in suburbs like Shepparton where updated homes are in demand. That increased value gives you more options down the line, whether that's further renovations, purchasing an investment property, or simply having a financial buffer.

Working With a Broker: What to Expect

A mortgage broker can assess your equity, compare lenders, and structure the refinance to suit your circumstances. Not all lenders value properties the same way, and not all lenders assess serviceability using the same criteria. A broker knows which lenders are more flexible with valuations in regional areas like Shepparton and which ones offer features that align with your goals.

Brokers also handle the paperwork, liaise with valuers, and keep the process moving. If you're juggling work, family, and renovation planning, having someone manage the finance side removes a layer of complexity. The service doesn't cost you anything upfront as brokers are paid by the lender, and the rate you receive through a broker is the same as going direct.

If you're considering a refinance to access equity, reach out early. The more notice you give, the more options you'll have, and the less likely you are to feel rushed into a decision that doesn't quite fit.

Call one of our team or book an appointment at a time that works for you. We're based in Shepparton and work with families across the region who want to make their homes work harder without the disruption of selling and moving.

Frequently Asked Questions