Using Equity to Renovate: How It Works in Australia

Using equity to renovate means borrowing against the value you've already built in your home to pay for improvements. Most lenders let you access up to 80% of your property's current value minus your remaining loan balance, with no separate deposit required. The process works through a top-up, redraw, or refinance, and each option carries different costs and conditions worth understanding before you commit.

Why are so many Australians using equity to renovate?

Australians spent $56 billion on home renovations in 2025, according to the Housing Industry Association. With the average home value sitting at $959,300 as of March 2026 (CoreLogic), many homeowners are sitting on significant equity they can put toward improvements. Using equity to renovate has become a practical alternative to saving separately or taking out a personal loan at higher interest rates. If you're considering a renovation, understanding how home renovation loans work is the first step to choosing the right finance path.

How does using equity to renovate actually work?

Equity is the difference between your property's current market value and what you still owe on your mortgage. If your home is worth $800,000 and your loan balance is $400,000, you have $400,000 in equity.

Lenders don't let you access all of it. Most cap borrowing at 80% of the property's value to avoid lenders mortgage insurance (LMI). This creates a figure called usable equity.

The formula is straightforward: multiply your property value by 0.80, then subtract your current loan balance. On that $800,000 home with a $400,000 loan, your usable equity is $240,000. That's the maximum most lenders will release for renovations without requiring LMI.

Some lenders will allow borrowing above 80% LVR, but you'll pay LMI on top, which can add $5,000 to $15,000 depending on the loan size. For most renovation projects, staying within the 80% threshold makes financial sense.

What are the three ways to access equity for renovations?

Loan top-up

A loan top-up increases your existing home loan balance by the amount you need for renovations. If you owe $400,000 and need $80,000 for a kitchen and bathroom renovation, your new balance becomes $480,000.

Top-ups are only available on variable rate loans. The process typically takes 2 to 4 weeks and requires a property valuation, which costs $300 to $600. Your lender will assess your income and expenses again, similar to a new loan application. Subject to lender approval, terms and conditions apply.

Redraw facility

If you've been making extra repayments on your mortgage, a redraw facility lets you pull that money back out. You're not borrowing new money. You're withdrawing repayments you've already made above the minimum.

For example, if you've paid $30,000 ahead of schedule over the past five years, you could redraw up to that amount for renovations. Not all loans have redraw enabled, and some lenders set minimum withdrawal amounts of $500 to $2,000. Check your loan terms before counting on this option.

Refinancing

Refinancing means replacing your existing home loan with a new one at a higher balance. This is the go-to option if you're on a fixed rate (since top-ups aren't available on fixed loans) or if you can secure a lower interest rate at the same time.

The catch is cost. If you're breaking a fixed rate loan early, break fees can run from $2,000 to $10,000 or more depending on how far into your fixed term you are and how rates have moved. Add discharge fees ($150 to $400), new application fees ($0 to $600), and a fresh valuation ($300 to $600). Always calculate whether the rate saving covers these costs before committing.

How much does using equity to renovate really cost?

The headline rate on your home loan might look cheap compared to a personal loan, but the real cost depends on your repayment timeline. Adding $100,000 to a mortgage at 6.0% over 25 years costs $93,290 in total interest. The same $100,000 on a 7-year personal loan at 9.5% costs $36,680 in interest.

That's a $56,610 difference, and it catches many borrowers off guard. Using equity to renovate works best when you commit to making extra repayments on the renovation portion to pay it down faster than your standard mortgage term.

The accelerated repayment column shows why strategy matters. If you treat the renovation portion as a separate debt and clear it in 10 years, the total interest drops to $33,220, making equity access the cheapest option overall.

When should you use equity vs other renovation finance?

Using equity to renovate suits projects between $20,000 and $250,000 where you have enough usable equity and can commit to faster repayments on the renovation portion. Below $20,000, a personal loan is simpler with less paperwork. Above $250,000, most lenders require a construction loan with staged draw-downs and progress inspections.

Equity access also works best when your renovation adds value to the property. A kitchen renovation typically returns 50% to 80% of its cost in added property value, while a pool can return 30% to 50% depending on location. If you're weighing up a pool project, Emu Money's pool cost calculator can help you estimate the total outlay before committing to finance.

For renovations that don't add proportional value, like a backyard office or studio, the lower interest rate of equity access still makes it a practical option if you plan to stay in the home long term. See the backyard office cost calculator to map out what your project might involve.

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