It comes down to equity and income. Equity is your home’s value minus what you owe. Most banks lend up to 80% of the value for an owner-occupied home, and the Reserve Bank’s loan-to-value rules apply to top-ups as well as new loans. You also need to show you can afford the higher repayments.

For example, a home worth $900,000 with $500,000 owing has $220,000 available up to 80% ($720,000 less $500,000), if your income supports it. The bank works out the value from a valuation, so if you think your home has gone up, a new valuation can free up more. The borrowing calculator gives a rough idea of the income side.

For how a revolving account works day to day, see revolving credit mortgages.

• Owners with at least 20% equity after the new borrowing is added.
• Families who need more space and would rather extend than pay the costs of selling and buying again.
• People fixing a problem, such as a leaky roof, old wiring or poor insulation, before it gets worse.
• Landlords bringing a rental up to the Healthy Homes standards.

It’s harder if your equity is under 20% or your income is already stretched. In that case it can make more sense to do the work in stages, or to look at a non-bank lender.

• Equity after the top-up, based on a current valuation, or an “as if complete” valuation for bigger jobs.
• Affordability of the whole loan at the bank’s test rate, including your other debts. See how credit cards and car loans affect borrowing.
• Quotes from your builder or tradespeople, so the bank can see what the money is for.
• Consents and plans for structural or consented work.
• Any unconsented work already on the property. If earlier owners added rooms without consent, a valuer may leave them out, which lowers the value.

This uses an assumed 5% rate to show the maths. It isn’t a current rate or a quote.

Ana tops up her mortgage by $60,000 for a new kitchen and bathroom. Here’s what the term she chooses for that top-up does to the cost:

The 25-year option feels easier each month but costs roughly $37,000 more in interest. I usually suggest putting the top-up on its own loan split and setting a short term for it, so the kitchen is paid off long before it needs replacing.

For larger jobs, lenders may lend against an “as if complete” valuation, which is what the home will be worth once the work is done. Funds are then released as the builder invoices each stage. You’ll usually need plans, the building consent and a fixed-price quote. It’s similar to how construction loans work.

Some smaller work doesn’t need a consent. The Building Performance site lists low-risk work that’s exempt. Check before you start, because unconsented work can cause problems when you sell or refinance.

The quote covers the work, but a renovation usually costs more than that. These are the extras I see catch people out most often:

The bank lends on what you ask for at the start. Going back for more halfway through is possible, but it means another application and sometimes another valuation, so it’s better to borrow a realistic figure the first time.

For a job paid over a few months, a revolving credit account is handy. You only pay interest on what you’ve used, and you can pay it back as fast as you like. The catch is that the limit stays there afterwards, and it’s easy to keep spending on it.

A separate fixed or floating split works better if you want the renovation paid off on a set timetable. You pick the term, the repayments are automatic, and the debt has a clear end date. Some people use both: a revolving account during the build, then move the balance into a split once the final invoice is paid.

1. Get quotes and, for bigger jobs, plans and a consent.
2. Check your equity with a valuation or an as-if-complete valuation.
3. Compare your current bank with others. Sometimes it’s worth refinancing the whole loan at the same time, especially if a fixed term is ending.
4. Choose the structure: a separate split, revolving credit, or staged drawdowns.
5. Get approval and sign the loan documents.
6. Funds are released in one go or as invoices come in.
7. Pay it down on the term you chose, and review it when your rate comes up.

Some work adds more value than it costs, and some doesn’t. Kitchens, bathrooms, insulation and extra bedrooms tend to help. Highly personal touches often don’t. If you might sell in a few years, get an agent’s view before you spend big.

• Reserve Bank: loan-to-value ratio restrictions
• Building Performance: building consent exemptions
• Tenancy Services: Healthy Homes standards