Understanding Equity Release Through Refinancing
Releasing equity in your property through refinancing has become an increasingly popular strategy for Australian homeowners looking to fund renovations. When property values rise and you pay down your mortgage, you build equity - the difference between your property's current value and your outstanding loan amount.
Refinancing allows you to access this equity by replacing your existing home loan with a new one that has a higher loan amount. The additional funds can then be used for home improvements, extensions, or complete renovations that add value to your property.
Benefits of Refinancing for Renovations
Accessing equity through refinancing offers several advantages over other financing options:
• Lower interest rates: Home loans typically offer more favourable rates compared to personal loans or credit cards
• Longer repayment terms: You can change your loan term to spread renovation costs over many years
• Tax benefits: Interest on funds used for home improvements may be tax deductible in certain circumstances
• Consolidated borrowing: Avoid multiple loan products by incorporating renovation costs into your mortgage
When Refinancing Makes Sense
Several situations make refinancing particularly attractive for accessing renovation funds:
Fixed Rate Period Ending: If your current fixed rate period ending, this presents an ideal opportunity to review your entire financial situation and consider accessing equity.
Improved Financial Position: Changes in income, employment, or credit score may qualify you for more favourable loan options than when you originally borrowed.
Market Conditions: When accessing a lower interest rate becomes possible due to market movements, refinancing can reduce loan repayments while providing renovation funds.
The Refinancing Application Process
The application process involves several key steps that Finance & Mortgage Brokers like Pollux Financial can help coordinate:
- Property Valuation: Lenders will assess your property's current market value to determine available equity
- Financial Assessment: Review of bank statements, income documentation, and overall financial situation
- Loan Comparison: Evaluation of variable interest rate and fixed interest rate options across multiple lenders
- Application Submission: Preparation and lodgement of your refinance application
Working with experienced brokers provides access loan options from banks and lenders across Australia, ensuring you receive comprehensive market coverage rather than being limited to a single institution's products.
Calculating Your Available Equity
Most lenders allow borrowing up to 80% of your property's value without requiring lenders mortgage insurance. For example:
• Property value: $800,000
• Maximum lending (80%): $640,000
• Current loan balance: $450,000
• Available equity: $190,000
This calculation helps determine how much funding you can access for renovations while maintaining a comfortable loan-to-value ratio.
Interest Rate Considerations
Refinance interest rates vary significantly between lenders and loan products. Key factors affecting your rate include:
• Loan amount and loan-to-value ratio
• Employment status and income stability
• Credit history and existing debts
• Property type and location
Mortgage brokers can check eligibility for special lender policies that might not be widely advertised, potentially securing more competitive rates for your specific circumstances.
Additional Benefits of Refinancing
Beyond accessing renovation funds, refinancing can help:
• Consolidate debts: Combine higher-rate personal loans or credit cards into your mortgage
• Improve cash flow: Reduce monthly repayments through rate reductions or term extensions
• Build wealth: Release equity to buy the next property for investment purposes
• Update loan features: Access modern banking facilities like offset accounts or redraw facilities
Choosing Between Variable and Fixed Rates
When refinancing for renovations, consider:
Variable Interest Rate Benefits:
• Flexibility to make extra repayments
• Potential to benefit from rate decreases
• Access to features like offset accounts
Fixed Interest Rate Benefits:
• Certainty of repayments during renovation period
• Protection against rate increases
• Budgeting predictability
Many borrowers choose a split loan combining both rate types.
Working with Pollux Financial
As experienced Finance & Mortgage Brokers, Pollux Financial offers a streamlined application process for clients across Canberra and nationwide. Our team understands the complexities of accessing equity for renovations and can guide you through every step.
We work with a comprehensive panel of lenders to ensure you receive suitable loan options that align with your renovation goals and financial objectives.
Call one of our team or book an appointment at a time that works for you to discuss how refinancing can fund your home renovation plans.
