Your kitchen is 20 years old, the bathroom leaks, and the quotes are landing somewhere between $90,000 and $220,000. There is plenty of equity in the house. The only question left is which loan gets that money to the builder without blowing up your rate or your timeline.
Sydney owners fund renovations three ways, and lenders treat each one very differently. Pick the wrong one and you either pay personal loan rates on money you could have borrowed at home loan rates, or you are three weeks out from demolition when the bank tells you the job should have been a construction loan all along.
Can you refinance to pay for a renovation?
Yes. Refinancing to renovate means increasing the loan secured against your existing home and taking the difference as cash for the work. Most Australian lenders will release equity up to 80 percent of the property's current value without charging Lenders Mortgage Insurance.
How the money comes out depends on the type of work. For cosmetic jobs (new kitchen, bathroom, flooring, paint, landscaping, a deck) the funds are usually released as a lump sum at settlement and you pay the trades yourself. For structural work (an extension, a second storey, removing load bearing walls) most lenders move you onto a construction loan structure and pay your builder in stages against a fixed price contract.
That single distinction, cosmetic versus structural, drives almost everything else in this guide.
Rate context matters too. The Reserve Bank left the cash rate at 4.35 percent at its 11 August 2026 meeting. Money is not getting cheaper in a hurry, so the gap between a home loan rate and an unsecured personal loan rate is still the biggest number in this decision.
The three ways to fund a renovation
| Funding route | How the money comes out | Rate level | Best for | Watch out for |
|---|---|---|---|---|
| Equity release (loan increase or new split) | Lump sum at settlement, parked in an offset or a separate split | Standard home loan rates | Cosmetic and non structural work, no council approval needed | Capped at 80 percent LVR before LMI, and large cash outs need a stated purpose |
| Construction loan | Progress payments drawn down and paid to the builder at each stage | Home loan rates, sometimes with a small margin | Extensions, second storeys, structural change, knockdown rebuild | Fixed price contract, council approval, on completion valuation, inspection at every stage |
| Personal loan | Lump sum in days, unsecured | Well above home loan rates | Small jobs, urgent repairs, owners with no usable equity | Short terms mean much higher repayments; rates vary widely by lender and credit profile |
Equity release is the cheapest and simplest route if your work is cosmetic. You either increase the existing loan or, better, ask the lender to carve out a separate split for the renovation amount. The split keeps the renovation borrowing visible in its own account, which makes it far easier to track and to pay down early. Our home equity service sets this up as part of the refinance.
A construction loan is not a punishment. It is a different payment mechanism. The lender approves the full amount but only releases it in stages as the build progresses, and you pay interest only on what has been drawn. That means your repayments during the build are lower than they would be on a lump sum. The trade off is paperwork: a licensed builder, a fixed price contract, council or private certifier approval, and a valuation done on the "as if complete" value. Our construction loans service walks through the stage schedule.
A personal loan makes sense in one scenario: the work is small, urgent, and you either have no usable equity or you do not want to disturb a good fixed rate. Rates are materially higher than home loan rates and terms are usually five to seven years, so the monthly repayment on the same dollar amount is far larger. Compare the two properly with our loan repayment calculator before you assume the personal loan is easier.
How much equity can you actually use?
Usable equity is not the same as total equity. Lenders draw the line at 80 percent of the property value, so the maths is:
- Current property value multiplied by 0.80
- Minus your current loan balance
- The result is your usable equity
Worked example, Baulkham Hills. A family bought in 2017 and the house now values at $1,480,000. Their loan balance is $520,000.
- 80 percent of $1,480,000 is $1,184,000
- Minus the $520,000 they owe
- Usable equity is $664,000
Their renovation budget is $220,000. Borrowing that takes the loan to $740,000 against a $1,480,000 property, which is an LVR of 50 percent. Comfortably inside policy, no LMI, and the lender will not blink.
Now the tighter version. A Kellyville couple bought in 2022. The house values at $1,050,000 and they owe $760,000.
- 80 percent of $1,050,000 is $840,000
- Minus $760,000
- Usable equity is $80,000
Their renovation quote is $180,000. On a straight equity release, the deal does not work. They have three realistic options: scale the job back to $80,000, accept LMI to push the LVR to 85 or 90 percent, or go the construction loan route where the lender values the property on completion rather than as it stands today. That last option is the one most people miss.
An on completion valuation counts the value the renovation adds. If that Kellyville house is worth $1,320,000 once the extension is finished, 80 percent of $1,320,000 is $1,056,000, and against a total debt of $940,000 the deal fits. Not every lender offers this, and the ones that do want a builder's fixed price contract and approved plans first. Model your position with our borrowing power calculator before you commit to a scope.
The cost of works line: when a lender demands a construction loan
There is no single national threshold. Policies differ by lender, and the number moves. What we see in practice is that most lenders start treating a renovation as construction somewhere in the $50,000 to $150,000 range of works, and some ignore the dollar figure entirely and look only at the nature of the job.
Five triggers push you into construction territory regardless of the budget:
- Structural change. Removing or altering load bearing walls, adding a storey, extending the footprint, changing the roofline.
- Council or certifier approval required. If the job needs a development application or a complying development certificate, expect construction treatment.
- A licensed builder and fixed price contract. Owner builder work and cost plus contracts are harder again, and several lenders will not fund them at all.
- The security becomes incomplete. If the house cannot be lived in or sold in its half finished state, the lender needs progress control.
- The valuation has to be done on completion. The moment you need the after value to make the numbers work, you are in construction lending.
What a construction loan structure actually involves
The lender approves a total facility, then releases it in stages. For a renovation, the schedule is usually three to five drawdowns rather than the five used on a new build. A typical extension might run deposit, slab and frame, lock up, fixing, then practical completion.
Three things change compared with a normal loan:
- You pay interest only on the drawn balance during the build. Draw $60,000 in month two and you pay interest on $60,000, not on the full facility.
- A valuer inspects before most payments. They confirm the work claimed has actually been done. Book this early, because a valuer who cannot get access delays your builder.
- Your builder must hold the right licence and insurance for the value of the works in NSW. Your lender will ask for the certificate before it releases the first progress payment.
If your project is big enough that you are debating whether to renovate or start again, our guide to knockdown rebuild costs in Sydney runs the comparison with real numbers.
Renovate or relocate?
Half the people who ask us about renovation finance end up buying instead. The maths is worth doing properly before you sign anything.
Renovating has one enormous advantage: you pay no stamp duty and no agent commission. On a $1.6 million upgrade in the Hills District, transfer duty plus selling costs on the old place can run past $110,000 before you have improved a single room. That is a big head start for the renovation.
Renovating loses on three fronts:
- The ceiling price of your street. Spend $400,000 on a house in a pocket where nothing sells above $1.6 million and you have over capitalised. A local agent will tell you the ceiling in ten minutes.
- Land and location. A renovation cannot move you into a better school catchment or add 200 square metres of land.
- Living through it. A six month structural job usually means renting somewhere else, and that cost belongs in your budget.
Run both scenarios. Price the renovation with a fixed quote, then price the move with our property selling costs calculator and the NSW stamp duty calculator. If the move wins, our guide to using equity to buy your next home picks up where this one leaves off.
What refinancing to renovate actually costs
Releasing equity is a refinance, so the usual switching costs apply: a discharge fee from your current lender, an application or settlement fee at the new one, a valuation, and government registration fees. If any part of your loan is fixed, a break cost may apply on top. We itemise all of it in our guide to the cost of refinancing a home loan.
Timing matters more than most people expect. A refinance in Australia typically takes four to six weeks from application to settlement, and the discharge authority at your outgoing lender can take up to three weeks on its own. Start the loan before you lock in a build start date, not after. If you are not sure whether now is the right moment to switch at all, our post on when to refinance a home loan covers the triggers.
If you want the structure mapped before you talk to a builder, book a free strategy call or get in touch with the team. We work with owners across Baulkham Hills and the wider Hills District and we will tell you straight whether your job is an equity release or a construction loan. Our refinancing service handles the switch either way.
Ready to fund your renovation the cheap way?
Bring us the quotes and we will tell you in one conversation whether your job is an equity release or a construction loan, how much usable equity you have, and what the switch will cost. No pressure and no obligation.
Call RyRo Loan Centre on 1300 11 7976 or book a free strategy call.
Updated August 2026.
Quick answers
Frequently asked questions
Yes. You increase your loan against the equity in your home and take the extra as renovation funds. Most lenders will go to 80 percent of the property value without Lenders Mortgage Insurance. Cosmetic work is usually paid out as a lump sum at settlement. Structural work is usually paid in progress payments under a construction loan structure. The lender will ask what the money is for, so have quotes ready.
Take 80 percent of your current property value and subtract your loan balance. That is your usable equity. On a $1,480,000 house with a $520,000 loan, 80 percent is $1,184,000, so usable equity is $664,000. Some lenders will go above 80 percent if you accept LMI, and some will value the property on completion of the renovation, which can unlock more. Both need to be arranged before you apply.
When the work is structural, when it needs council or certifier approval, when a licensed builder and fixed price contract are involved, or when the lender has to value the property on completion to make the numbers work. Cost of works matters too. Many lenders flip to construction treatment somewhere between $50,000 and $150,000, but the threshold varies by lender and the nature of the job usually decides it before the dollar figure does.
Almost always, if you have equity. A renovation funded through your home loan sits at standard home loan rates over a long term. An unsecured personal loan sits well above that over five to seven years, so both the rate and the repayment are much higher. Personal loans win only on speed and on cases where you have no usable equity or do not want to disturb a fixed rate. Compare the repayments side by side before you decide.
For a lump sum equity release, most lenders ask for the purpose and may want quotes, but they do not audit the receipts afterwards. For a construction loan they absolutely check. A valuer inspects at each stage and the lender pays your builder directly against progress claims, so the money can only go where the contract says it goes.
Kitchens, bathrooms and adding a usable bedroom generally return the most in Sydney. Swimming pools, high end finishes and anything unusual return the least. The real test is your street's ceiling price. If the finished house would sit above what anything in your pocket has ever sold for, you are over capitalising and the extra spend is lifestyle, not investment. Ask a local agent for the ceiling before you sign the contract.
You can, but you may pay a break cost. Break costs apply when wholesale rates for the remaining fixed term have fallen since you locked in, and they can be significant on a large balance with years to run. Ask your lender for a written break quote, which is usually valid only for that day. An alternative is leaving the fixed portion alone and taking a separate top up split with the same lender, which some lenders allow.
Allow four to six weeks from application to settlement for a straightforward equity release, longer if your current lender is slow with the discharge authority. A construction loan takes longer at the front end because plans, the fixed price contract and the on completion valuation all have to be assessed. Once approved, individual progress payments usually clear within three to five business days of the valuer signing off.
Renovating avoids stamp duty and agent commission, which on a Sydney upgrade can easily exceed $110,000 combined. Moving buys you land, location and a school catchment that a renovation cannot deliver. Price both properly: a fixed quote for the build, and full selling plus buying costs for the move. If the renovation pushes you past your street's ceiling price, moving is usually the better call.
