Everything you need to know about renovating with a home loan

Can You Use a Home Loan to Renovate Your Toronto Property?

You can absolutely use a home loan to fund renovations on your Toronto property. Whether you refinance your existing loan to release equity, increase your current borrowing, or structure a construction facility within your home loan, the approach depends on how much equity you have and what you're planning to build or update.

Consider someone who bought in Toronto a few years back when the median was lower. They've since built up equity as property values in the area have held steady, and now they want to add a deck and update the kitchen. Rather than saving for years or using a personal loan with a higher rate, they refinance and draw down an additional amount at home loan rates. The savings on interest alone make the approach worthwhile, and the monthly increase in repayments is manageable because the term is spread over years rather than a short personal loan period.

How Equity in Your Toronto Home Funds the Work

Lenders allow you to borrow against the equity you've built in your home. Equity is the difference between what your property is worth and what you owe on it. Most lenders will let you access up to 80 per cent of your property's value without paying lenders mortgage insurance. If you need to go above that threshold, LMI becomes a cost to factor in, though sometimes it still makes sense depending on the scope of the renovation and the value it adds.

In Toronto, where many homes sit on larger blocks near the lake or back onto bushland, the opportunity to add a second living area or extend outdoors is common. If your property is valued around the current median for the suburb and you owe less than 60 or 70 per cent of that value, you likely have enough equity to fund a moderate renovation without needing to increase your loan-to-value ratio beyond 80 per cent. Your broker can run the numbers with you and show exactly how much is available to draw down before LMI applies.

Refinancing to Release Equity for Renovations

If you already have a home loan and you've been paying it down for a while, refinancing lets you access the equity you've built without taking out a separate loan. You're essentially increasing your loan amount and using the additional funds for the renovation. Because it's secured against your property, the interest rate will typically be far lower than an unsecured personal loan.

When you refinance, you also have the chance to review your current loan structure. You might move from a fixed rate that's coming to an end onto a variable rate with an offset account, or split your loan so part of it remains fixed while the rest sits in a variable portion linked to offset. That flexibility can reduce the amount of interest you pay on the total loan amount, including the renovation funds, if you're disciplined about keeping savings in the offset.

Construction Loan Facilities for Larger Projects

For more substantial work such as an extension, second storey, or major structural update, many lenders offer a construction facility as part of your home loan package. Instead of receiving the full loan amount upfront, funds are released in stages as the builder completes each phase of the project. This structure benefits you because you're only paying interest on the amount that's been drawn down, not the full approved sum.

Lenders typically require progress inspections and invoices from your builder before releasing each stage of funds. If you're knocking down and rebuilding or adding significant floor space to your Toronto home, this type of facility keeps your interest costs lower during the build period and gives the lender confidence that the work is progressing as planned.

Fixed, Variable, or Split: What Works for Renovation Borrowing

When you're borrowing additional funds for a renovation, you can choose how to structure the rate on that portion of the loan. A variable rate gives you flexibility to make extra repayments without penalty and typically comes with an offset account, which can reduce the interest you pay if you keep a buffer in that account. A fixed rate locks in your repayment amount for a set period, which can help with budgeting if you want certainty during the renovation phase.

Many Toronto residents we work with prefer a split loan structure when they refinance for renovations. They'll fix a portion of the total loan to lock in repayments on the bulk of the borrowing, then keep the renovation amount on a variable rate linked to an offset. That way, if they have savings sitting in the offset account or if they receive any lump sums during the year, they can reduce the interest on the variable portion without being locked into a fixed rate on the full amount.

What Lenders Want to See Before Approving Renovation Funds

Lenders assess your serviceability just as they would for any other home loan application. They'll want to confirm that you can afford the higher loan amount, factoring in the interest rate buffer that APRA requires. That buffer sits at 3.0 percentage points above the loan product rate, meaning lenders test whether you could still make repayments if rates were to rise.

You'll also need to provide evidence of what the renovation will cost. For smaller amounts, a quote from a licensed builder or tradie is usually sufficient. For larger projects, lenders may ask for a full scope of works, council approval if required, and a detailed breakdown of costs. If the renovation is expected to add significant value to the property, that works in your favour, because the lender's security position improves as the property value increases.

How Toronto's Proximity to the Lake Affects Renovation Value

Toronto's appeal lies in its lakefront access and established community feel. Homes close to the water or with views across the lake tend to hold their value well, and renovations that enhance outdoor living or take advantage of the aspect can add substantial value. Extending a deck, adding bifold doors to open up the living area to the backyard, or creating an alfresco space are all common projects that suit the local lifestyle and appeal to buyers if you ever choose to sell.

If your property backs onto reserve land or is within walking distance of the Toronto Foreshore, the renovation you're planning might attract more interest from lenders because the location itself supports long-term value. That doesn't mean approval is automatic, but it does mean the lender's valuer is likely to be confident in the post-renovation valuation, which can smooth the approval process.

When an Offset Account Reduces Interest on Your Renovation Loan

An offset account linked to your home loan can reduce the amount of interest you pay on your total borrowing, including any funds you've drawn down for renovations. The balance in your offset account is subtracted from your loan balance when the lender calculates interest each day. If you're refinancing to access equity and you choose a variable rate product with offset, you can park your savings in that account and immediately reduce your interest costs.

For someone renovating in stages, keeping surplus funds in an offset account until each tradie or supplier invoice is due means you're only paying interest on the exact amount you've spent at any given time. That approach keeps your costs down and gives you the flexibility to adjust timing if the project runs ahead or behind schedule.

Renovation Loans vs Personal Loans: The Cost Difference

A personal loan might seem like the simpler option because it doesn't require you to touch your home loan, but the interest rate difference is significant. Personal loans for renovations often sit several percentage points higher than home loan rates, and the term is usually much shorter, meaning your repayments are higher. Borrowing the same amount through your home loan, secured against your property, will cost you far less in interest over the life of the loan.

The trade-off is that you're extending the term of your borrowing if you add the renovation amount to your existing home loan. If that concerns you, you can make extra repayments on the variable portion or set up a separate split specifically for the renovation funds and target paying that portion down faster. Your broker can model both scenarios so you can see the total interest cost and monthly repayment for each structure.

Combining Renovation Borrowing with a Rate Review

If your current home loan rate is higher than what's available in the market right now, refinancing for your renovation gives you the opportunity to secure a lower rate on your entire loan balance, not just the additional amount. That double benefit can offset some or all of the increase in repayments from borrowing more, depending on how much your rate drops and how much you're drawing down.

We regularly see Toronto homeowners who've been with the same lender for years and haven't reviewed their rate since their original loan settled. When they come to us to discuss borrowing for a renovation, we run a comparison across our panel of lenders and often find they can reduce their rate by half a percentage point or more while also accessing the funds they need. That combination makes a tangible difference to monthly cash flow and total interest paid over time.

When It Makes Sense to Wait Before Borrowing for Renovations

Sometimes the numbers don't support borrowing more right now. If you've recently refinanced and your equity position is tight, or if your income situation has changed and serviceability is marginal, it might make more sense to wait six or twelve months, pay down your loan a bit further, and build your equity buffer before applying. Rushing into a refinance or loan increase when the numbers are borderline can lead to a declined application or an approval with conditions that don't suit your circumstances.

Your broker's role is to tell you honestly whether now is the right time or whether you'd be in a stronger position by waiting. If you're close to the 80 per cent LVR threshold and waiting a few months would keep you below it and avoid LMI, that's usually worth the delay. If your employment status is about to change or you're planning another financial commitment soon, timing your renovation borrowing around those factors can make the difference between a smooth approval and a stressful process.

Call one of our team or book an appointment at a time that works for you. We'll run through your current loan, your equity position, and what your options look like for funding the renovation you're planning. Whether it's a small update or a major extension, we'll show you how to structure the borrowing so it fits your budget and keeps your repayments manageable.

Frequently Asked Questions