Refinancing for Renovations: Is It Worth It?

Refinancing for renovations means replacing your home loan with a new, larger one and using the extra funds to pay for improvements. It can work if you are on an above-market rate and have significant equity, but most borrowers underestimate the switching costs, the time it takes, and the total interest they will pay by rolling renovation debt into a 25 to 30-year mortgage. For many renovation projects, a separate personal loan is faster, simpler, and cheaper in total interest.

Why Australians are searching for refinancing for renovations

A total of 640,137 Australian mortgages were refinanced in 2025, up 20% on the previous year, according to ABS lending data. The gap between older mortgage rates and today's competitive offers is driving much of this activity. The average standard variable rate sits at around 6.65% in April 2026, while competitive lenders are offering rates from 5.08% for borrowers with a loan-to-value ratio below 80%. On the surface, refinancing for renovations looks like a two-for-one deal: a better rate and extra cash. But the headline rate hides real costs that many borrowers only discover after they have committed.

How refinancing for renovations works

When you refinance for renovations, your new lender pays out your existing mortgage and issues a new, larger loan. The difference between your old balance and the new one is released for your renovation, either as a lump sum or into an offset account.

The process takes four to six weeks and requires a full loan application, credit check, and property valuation. Your old lender charges a discharge fee to release the mortgage, and your new lender may charge an application or establishment fee on top.

What you can borrow

Most lenders cap borrowing at 80% of your property's current value without lenders mortgage insurance (LMI). If your home is worth $900,000 and your current loan balance is $450,000, your usable equity is $270,000. That is the maximum you could add for renovations, though most projects need far less. The average bathroom renovation costs around $26,000 (HIA) and one in ten kitchen renovations exceeds $45,000.

The costs most people overlook

Refinancing is not free. Before comparing rates, add up what it actually costs to switch.

Fixed-rate break fees

If you are on a fixed rate, the numbers change dramatically. Break fees compensate your lender for the interest they expected to earn over the remaining term. The amount depends on the difference between your locked-in rate and the current wholesale rate, multiplied by your balance and remaining term. In some cases, break fees have exceeded $35,000. If you are mid-way through a fixed term, refinancing rarely makes sense.

The hidden cost: resetting to 30 years

This is where refinancing for renovations gets expensive in ways the rate comparison does not show. When you refinance, the new lender defaults to a 30-year term. If you had 22 years left on your old loan, you have just added eight years of repayments.

Worse, your renovation funds now sit on your mortgage for decades. Adding $80,000 for a kitchen renovation to a mortgage at 6.0% over 25 years costs $74,630 in total interest. The same $80,000 on a 7-year personal loan at 9.5% costs $29,340 in interest. That is a $45,290 difference, and it is the number most refinancing calculators leave out.

The accelerated column shows that refinancing can be cheaper, but only if you discipline yourself to pay the renovation portion down in seven years rather than letting it ride for the full mortgage term. Most borrowers intend to do this. Few actually do.

When refinancing for renovations does make sense

Refinancing is worth considering in a narrow set of circumstances. You need all three of these to be true at once.

Your current rate is well above market. If you are paying 6.50% and can refinance to 5.50%, the rate saving on your entire loan balance (not just the renovation) can be substantial. On a $500,000 loan, that 1.0 percentage point gap saves roughly $5,000 a year in interest.

You have at least 20% equity. Without this, you will pay LMI, which adds $5,000 to $15,000 to the cost and wipes out the rate saving for years.

You will match or shorten your remaining term. If you insist on matching your remaining 20 years rather than resetting to 30, the total interest cost stays reasonable. Ask the new lender to set the term to match.

If any one of these is missing, you are likely better off keeping your current mortgage and financing the renovation separately.

Why a personal loan often wins for renovations

For most renovation projects under $150,000, a personal loan avoids every downside of refinancing.

No property risk. Your home is not used as security. If something goes wrong financially, your mortgage is not affected.

Fixed term, forced payoff. A 5 to 7-year personal loan has a set end date. You cannot accidentally let renovation debt drift for 25 years because the loan structure does not allow it.

Faster access. Personal loan approval can take 24 to 48 hours, compared to four to six weeks for a refinance. If your builder is ready to start, you are not waiting on valuations and settlement.

No switching costs. No discharge fees, no break fees, no new valuation. The rate is higher, but the total cost is often lower because the term is shorter.

Simpler process. One application, one approval. No juggling two lenders, no settlement coordination, no risk of your existing rate lock expiring during the switch.

For a full comparison of all renovation finance paths, see our overview of home renovation loans. If you already know equity access is the right fit, our guide to using equity to renovate walks through top-ups, redraws, and refinancing in detail.

Five questions to ask before you decide

1. What is the rate gap?

If your current rate is within 0.50 percentage points of the best available refinancing rate, the switching costs will take years to recoup. A personal loan is simpler.

2. What are my total switching costs?

Request a written discharge estimate from your current lender, including any break fees. Add the new lender's application and valuation fees. If the total exceeds $3,000, the break-even stretches beyond 12 months for most borrowers.

3. How much do I actually need?

For renovations under $100,000, the complexity of refinancing is hard to justify. A personal loan covers the same amount with less paperwork and faster access.

4. Will I actually accelerate repayments?

Be honest. If you will make minimum repayments on your mortgage (as most borrowers do), the renovation portion will cost you tens of thousands more in interest than a fixed-term personal loan.

5. How soon do I need the funds?

If your builder needs a deposit in the next two weeks, refinancing will not get there in time. Personal loan funds can arrive within days.

This article is general information only and is not financial advice.