Using Equity for Renovations.
Renovating a home is one of the most common reasons people access equity — and when it’s structured properly, it can be one of the most cost-effective ways to fund improvements. When it’s done poorly, it can create messy loans, reduce flexibility, and make future refinancing harder than it needs to be.
Equity isn’t “free money”. It’s borrowing secured against your property, and the way it’s accessed matters just as much as how much you access. Our role as brokers is to help you understand what’s available, how lenders assess renovation funding, and how to structure it so it stays clean and manageable over time.
What equity actually is (and what lenders mean by “usable equity”)
Equity is the difference between your property’s value and what you owe on it.
Usable equity is the portion of that equity a lender is prepared to let you access, subject to policy and borrowing capacity.
In many scenarios, lenders are comfortable lending up to 80% of a property’s value without lender’s mortgage insurance, assuming servicing supports it. Anything above that is more restrictive and lender-dependent.
A simplified example:
- Property value: $900,000
- 80% of value: $720,000
- Current loan balance: $580,000
- Potential usable equity: $140,000 (before servicing checks)
The final amount available always depends on:
- The lender’s valuation
- Your income and expenses
- Existing debts
- Lender policy at the time
Equity exists on paper — usable equity only exists once the bank agrees.
Why equity is often the cheapest way to fund renovations
Compared to personal loans or credit cards, equity lending usually:
- Has lower interest rates
- Allows longer loan terms
- Reduces monthly repayment pressure
- Keeps cash reserves intact
For larger renovation projects, this can make a meaningful difference to cash flow. However, lower cost doesn’t mean lower risk — the debt is secured against your home, so structure matters.
Common ways renovations are funded using equity
There’s more than one way to access equity, and the “simplest” option isn’t always the best.
Increasing an existing loan
This involves increasing your current home loan balance.
Pros:
- Simple to execute
- Often faster
Cons:
- Mixes loan purposes
- Makes tracking renovation spending harder
- Can complicate future refinancing or tax clarity
This can work for smaller renovations, but it’s not always ideal.
Creating a separate loan split (often preferred)
A new loan split is created specifically for renovation funds.
Pros:
- Clear separation of purpose
- Easier tracking of funds
- More flexibility later
- Cleaner structure for future changes
This is often the preferred approach, especially for larger or staged renovations.
Line of credit or similar facilities
Less common today due to tighter policy, but still used in some scenarios.
These can offer flexibility but require careful management and aren’t suitable for everyone.
We’ll recommend a structure based on lender policy, renovation size, and how you plan to manage the funds.
Holding renovation funds in offset until needed
A practical strategy is to:
- Release equity into a separate loan split
- Place the funds into an offset account
- Draw on the funds progressively as works are completed
This reduces interest costs while keeping funds accessible and controlled. It also avoids drawing the full amount before it’s actually required.
How lenders assess renovation funding
Lenders generally want to understand:
- The purpose of the funds
- The size and scope of the renovation
- Whether works are cosmetic or structural
- Whether a builder is involved
Depending on the scale of the renovation, lenders may ask for:
- Quotes or a scope of works
- Builder details
- Confirmation works are non-structural (in simpler cases)
We guide you through what’s required and choose lenders whose policies align with your project.
Renovations and valuations — managing expectations
Not all renovations increase value dollar-for-dollar, and banks don’t assume they will.
Valuers typically:
- Assess value based on current condition (before works)
- Only recognise completed improvements
- May not “pre-value” proposed renovations
This means renovation funding is usually based on existing value, not projected end value, unless construction-style lending is used.
We help set realistic expectations around:
- What can be funded upfront
- When a revaluation might make sense
- How improvements may affect future equity
Common mistakes we help clients avoid
Some frequent issues include:
- Drawing all funds immediately and paying unnecessary interest
- Mixing renovation funds with everyday spending
- Over-estimating value uplift
- Structuring everything into one loan for convenience
- Accessing equity without considering future plans
These mistakes aren’t catastrophic — but they do create friction later.
Renovations and future flexibility
How you structure renovation funding affects:
- Ability to refinance later
- Ease of accessing equity again
- Clarity around loan balances
- Long-term interest costs
If you plan to:
- Renovate again
- Upgrade homes
- Invest in property
- Start or expand a business
…then structure today matters.
The Lumo approach to renovation funding
We help clients renovate with confidence by:
- Assessing usable equity properly
- Comparing lenders for policy, pricing, and speed
- Structuring clean loan splits
- Managing valuations and timing
- Keeping future flexibility front of mind
Renovations should improve how you live — not complicate your finances. When equity is used properly, it does exactly that.