Top Strategies to Fund a Renovation in Bentleigh East

Funding a renovation starts with choosing a loan structure that suits the size of your project and how long you plan to stay. Getting that decision right can shape your repayments for years.

Homeowners often weigh up whether to extend, update a kitchen or add a second storey. The finance behind each of those projects can look quite different. This article walks through the main options, and the trade-offs of each, so you can choose with confidence.

How Can You Finance a Home Renovation?

You can fund a renovation by refinancing and increasing your loan, using available equity, or taking out a construction loan for major structural work. The right choice depends on the project scope, your current loan and how much your home may be worth after the work.

Equity is the gap between your home's value and what you owe. Lenders will usually assess this using the loan to value ratio (LVR), which compares your loan amount to the property's value. If your LVR is high, your options may narrow, and Lenders Mortgage Insurance (LMI) can apply to some higher LVR loans. That is a real cost to weigh up.

A broker can compare home loan options from the lenders on their panel, so you are not limited to one lender's policy on renovation lending.

Should You Refinance to Fund Renovations?

Refinancing can suit a renovation when your current loan is uncompetitive or lacks features, and you want to release equity in one step. The trade-off is that you may pay refinancing costs, and a larger loan means higher repayments and more interest over time.

A lender will value your property and assess your income and expenses before agreeing to a higher limit. Our refinancing team can compare options, and a loan health check is a useful first step to see whether your current loan still suits you.

If you are on a fixed rate that is about to end, the timing of a renovation top-up may line up well with your fixed rate expiry. Breaking a fixed rate early can trigger break costs, so check the details before you act.

Which Loan Structure Suits a Renovation?

There is no single structure that suits every renovation. A variable rate offers flexibility, a fixed rate offers repayment certainty, and a split rate gives you some of each.

With a variable rate, your repayments can move when your lender changes its rate, but you can usually make extra repayments and use an offset account. With a fixed rate, your repayments are locked in for the fixed term, but extra repayments are often capped and break costs can apply. A split loan divides your balance between the two, which can balance certainty and flexibility at the cost of a more complex loan to manage.

Features matter as much as the rate. A linked offset account reduces the interest charged on your balance by the amount sitting in the account. This can help if you are holding renovation funds before paying tradespeople. Offset accounts and other features can come with higher fees or a higher rate, so it is worth comparing the full cost. Use a repayment calculator or our repayments page to test different scenarios.

When Does a Construction Loan Make Sense?

A construction loan suits major renovations, such as large extensions or knock-down rebuilds, where funds are released in stages as work is completed. It is generally more suitable than a straightforward top-up when the project involves a builder and a fixed-price contract.

With progress payments, you only pay interest on the amount drawn at each stage, which can keep early repayments lower. The trade-off is extra paperwork, such as building contracts, plans and council permits, and lenders may require valuations at different stages. You can read more on our construction loans page.

Example: Funding a Rear Extension With a Split Structure

Consider a Bentleigh East couple who want to add a living area at the back of their home. They have built up equity, but their current loan has no offset account, and their fixed rate is ending soon.

They refinance to a new loan with a larger limit. They split it into a $400,000 variable portion with a linked offset account and a $300,000 fixed portion. The variable portion holds the renovation funds, so the offset reduces interest while they wait to pay the builder in stages.

As an illustration only, a single $700,000 loan over 30 years at an example rate of 6.75% p.a. on principal and interest would have a monthly repayment of about $4,540. A split loan will differ, because the fixed portion may have a different rate and cannot be offset. If the couple kept $50,000 in the offset account, it would only reduce interest on the variable portion, so interest on that portion would be calculated on $350,000 instead of $400,000 while that money sat there. The fixed portion would keep accruing interest on its full $300,000 balance. Actual rates and repayments will vary by lender and your circumstances.

The outcome is a loan with a clear repayment plan for the fixed part, and flexibility on the variable part. The cost is a larger loan and higher repayments than they had before, so they test their budget carefully before proceeding.

How Much Can You Borrow for a Renovation?

Your borrowing capacity depends on your income, expenses, existing debts and the value of your property. Lenders also consider the loan to value ratio and your repayment history.

An up-to-date picture of your capacity helps you set a realistic renovation budget before you talk to builders. Our borrowing capacity page explains the factors in more detail. Some homeowners also use a pre-approval to confirm their limit before committing to a contract. Pre-approval is not a final approval, and a lender will still assess the loan once you apply.

Choosing an Owner Occupied Loan for Your Renovation

Most renovations on the home you live in are funded through an owner occupied home loan. Lenders often price owner occupied loans differently from investment loans, so how you use the property matters.

If you plan to renovate and then rent the property out, tell your broker early, as the loan purpose can affect the rate and policy. Our home loans page outlines the main loan types.

There is also a practical point on timing. Compare quotes from builders before you apply, as lenders may want to see costings that support the amount you are asking for. A loan limit that matches the quote reduces the chance of needing a second top-up part-way through.

Call one of our team or book an appointment at a time that works for you, and we can map out a renovation loan structure that fits your plans and your budget.

Frequently Asked Questions