Renovating your home is one of the most effective ways to add value and improve your quality of life — but it requires significant capital. Many Australian homeowners are sitting on substantial equity that can be unlocked to fund their renovation at home loan interest rates, which are significantly lower than personal loan or construction finance rates.
This guide covers how to refinance to renovate, what it costs, which renovations add the most value, and how to structure it correctly.
Why Refinance to Renovate (Instead of Other Finance)?
Compared to alternatives, using home equity is usually the lowest-cost renovation finance option:
| Finance Option | Typical Rate | $80,000 Renovation, 5yr Monthly Cost | |---------------|-------------|--------------------------------------| | Home equity (refinance) | 5.69%–6.49% | ~$1,534–$1,571 | | Personal loan | 8.99%–13.99% | ~$1,658–$1,852 | | Construction loan | 6.49%–7.49% | ~$1,571–$1,610 | | Credit card | 19.99%–22.99% | Very high — not recommended |
The equity refinance is consistently the lowest-rate option. If you have sufficient equity, it's almost always the best financial choice.
How Much Can You Borrow for Renovation?
Your renovation borrowing capacity is determined by your available equity (up to 80% LVR) and your ability to service the increased repayments.
Using the equity formula:
| Property Value | Current Loan | Available Equity (80%) | Renovation Capacity | |---------------|-------------|------------------------|---------------------| | $850,000 | $400,000 | $280,000 | Up to $280,000 | | $1,100,000 | $600,000 | $280,000 | Up to $280,000 | | $700,000 | $250,000 | $310,000 | Up to $310,000 |
Additional constraint: The lender also checks that you can service the increased loan at the stress-tested rate (+3%). If your income doesn't support the higher repayments, the maximum borrowing is constrained by serviceability rather than equity.
Loan Structures for Renovation Finance
Option 1: Cash-Out Refinance (Lump Sum)
Most common. Refinance your existing loan to a higher balance, receive the extra funds as cash, pay your builder or supplier directly.
Best for: Renovations where you have firm quotes and will pay contractors as work progresses.
Option 2: Line of Credit (Revolving)
A separate loan facility secured against your home. Draw down as needed, repay as you can, redraw again if necessary.
Best for: Staged renovations where costs are uncertain or spread over a long period. Interest is only charged on the drawn balance.
Option 3: Construction Loan (For Significant Extensions)
For renovations involving new building work (extensions, knock-down rebuilds), a construction loan with progress drawdowns is often more appropriate. Interest is only paid on the drawn amount.
Best for: Extensions, additions, or significant structural work with a licensed builder and building permit.
Option 4: Refinance and Split
Refinance your home loan and set up a split — the renovation portion as a separate sub-account. Useful for tax clarity if you later rent the renovated property, and keeps renovation costs clearly tracked.
Which Renovations Add the Most Value?
Not all renovations are created equal from a return-on-investment perspective. Research from property valuers and real estate agents consistently identifies:
High ROI renovations (often return 100%+ of cost):
- Kitchen upgrades (particularly cabinetry, benchtops, appliances)
- Bathroom renovations
- Adding an ensuite or third bedroom
- Landscaping and outdoor entertaining area
- Painting (interior and exterior)
Medium ROI renovations (return 60–100% of cost):
- New flooring
- Roof restoration or replacement
- HVAC / ducted air conditioning
- Solar and battery installation (also generates ongoing savings)
- New windows and double glazing
Lower ROI (improve liveability but may not fully recover in value):
- Swimming pools (maintenance costs reduce net value addition)
- Highly personalised fit-outs (wine cellars, home theatres)
- High-end selections that exceed the market's expectations for the suburb
A good pre-renovation strategy is to get a property valuation and discuss with a local agent what the "before" and expected "after" values look like.
Renovation Costs in Australia: What to Budget
Renovation costs vary significantly by city, suburb, and finish level. As a guide for 2026:
| Renovation | Entry-Level | Mid-Range | Premium | |-----------|------------|----------|---------| | Kitchen full renovation | $20,000–$35,000 | $40,000–$70,000 | $80,000+ | | Bathroom renovation | $12,000–$20,000 | $22,000–$40,000 | $45,000+ | | Ensuite addition | $15,000–$25,000 | $28,000–$45,000 | $50,000+ | | Extension (per sqm) | $2,500–$3,500/sqm | $3,500–$5,000/sqm | $5,000+/sqm | | Solar + battery (10kW + 10kWh) | $15,000–$20,000 | $22,000–$30,000 | — | | Landscaping and deck | $10,000–$20,000 | $25,000–$50,000 | $60,000+ |
Council approval adds costs ($2,000–$10,000+) for significant works. Always include a 10–15% contingency budget for unexpected costs.
Getting the Most from Your Renovation Finance
Get 3 builder quotes. Significant variations exist in builder pricing — 3 comparative quotes ensure you're not paying over the odds.
Use a registered builder. For works requiring a building permit, a licensed builder is required. Check registration with your state building authority.
Stage your renovation. If you're not sure about the full scope, start with the highest-ROI works and use a line of credit that allows future draws for later stages.
Consider energy efficiency. Including solar, a heat pump hot water system, or insulation upgrades adds long-term value and reduces running costs — and may be eligible for government green loan subsidies that can be stacked with your equity refinance.
Talk to your broker before committing. The renovation finance structure (lump sum vs LOC vs construction loan) has implications for your tax position, cash flow, and future refinancing flexibility. Get advice before you sign builder contracts.
Frequently Asked Questions
Do I need council approval for a kitchen or bathroom renovation? Generally no — internal renovations that don't involve structural changes don't require council approval. Structural works, extensions, and changes to plumbing locations often do. Check with your council.
Can I include furniture and appliances in a renovation loan? Most lenders require renovation funds to be used for fixed improvements to the property. Furniture and freestanding appliances are generally not eligible. Integrated appliances (dishwasher, oven) are usually fine.
What if I go over budget during the renovation? If you've drawn all available equity and need more, your options are: apply for additional finance (if equity allows), use personal savings, or pause and complete remaining work later.
Can I rent out my property while renovating? It depends on the nature of the work. For liveable renovations, renting is fine. For major structural work, the property must typically be vacated.
Does solar qualify as a renovation for equity release purposes? Yes. Solar, battery, and heat pump hot water system installations qualify as eligible home improvements for equity release purposes with most lenders.
Fund Your Renovation With NIK Finance
Ready to transform your home? Find out how much equity you can access for your renovation by filling out our 2-minute form at nik.finance — we'll compare 40+ lenders and structure your renovation finance to maximise value and minimise cost.
NIK Finance holds an Australian Credit Licence. Renovation ROI figures are indicative and vary by market and property.