Refinancing to Renovate

cairns mortgage brokers | Personal

Refinancing your assets to renovate a property is a significant, personal decision that will hopefully improve your standard of living or add substantial financial value to your Cairns home. Refinancing isn’t as straightforward as one might expect. The type of renovation that you require, helps us predict what type of loan would suit you best. If the wrong loan is chosen, you could be left with a pile of unexpected debt. 

Know your budget

  • Before you can consider refinancing, you need to have a clear idea of your financial budget.
  • If you underestimate your budget, you run the risk of getting knocked back from your lenders. For example, you may estimate a budget of say $100,000 to do your renovations, only to discover it will cost a lot more!  This would mean that you would have to reapply for the loan which a lot of lenders don’t like.
  • Be conservative with your projection. If you think you need about $100,000 apply for $150,000 just in case, if you can afford it.
  • The next step is to speak to us at Preston Finance in Cairns to determine which loan will suit your needs and objectives. 

Line of credit loan (Home equity loan)

  • Also known as an equity home loan or mortgage, to be eligible, one must be looking to make upgrades to the cosmetic domain of their property.
  • Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit home loan.
  • These renovations, more often than not, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR).
  • A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into one loan.
  • To calculate the value you can borrow, subtract your current mortgage balance from your property value and then multiply by 80 per cent. For example, if your property is worth $500,000, and you have $250,000 left on your mortgage, your home equity is $250,000. You then multiply this total by 80 per cent.
  • If you’re uncertain of your home value, Preston Finance can assist you to arrange for an appraisal or valuation.
  • If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments over time. However, the interest-only charge starts when the equity is drawn down.
  • Keep in mind, line of credit loans provide you with money that can gather interest quickly over time.


Construction loans

  • Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.
  • Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.
  • The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty but only pay interest on the money you choose to spend. For this reason, your broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.
  • When applying for a construction loan, council approval and a fixed price building contract are required, which Preston Finance can handle to reduce the paperwork and stress.
  • Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to your mortgage broker as you may be able to refinance back to the loan of your choice.
  • When looking at both these loans, you can call on other property you own to boost your overall borrowing amount if you wish.
  • You can use other property to get a line of credit and a construction loan. Or you can get a typical construction loan if there is going to be an extensive framework change on the building. 

Broker advice

If you speak to us at Preston Finance,  we will be able to determine which type of loan will give you the options you seek. This advice is essential, as a poorly planned construction loan could cost you more down the road. You should ask the question ‘What type of loan am I eligible for? because if you don’t get your construction loan right, you may be jeopardising your financial security. While these specific options can be discussed with us, if they aren’t suitable, there may be other options available to you. Speak to us at Preston Finance to make your grand renovation plans a reality. 


Preston Finance

1/15 Spence St


07 4052 0750