Home renovation mortgage: how it works and key advantages

How a renovation mortgage works

The renovation mortgage is a type of financing that allows you to cover both the purchase price of the property and the expected costs of renovation works under a single contract. The amount granted by the bank is typically split into two tranches: the first is allocated to the purchase, while the second is progressively released based on the progress of the construction work. This mechanism makes it possible to plan the entire project without having to resort to separate loans or advance personal funds to cover building costs.

Let’s look at the three main advantages of this formula, which can turn an ambitious project into a manageable and well-planned process.

First advantage: savings on overall costs

The first and most immediate advantage of a renovation mortgage is the possibility of combining, in a single contract, the capital intended for the purchase and that required for the renovation works. This eliminates the need to take out two separate loans, resulting in lower ancillary expenses, processing fees, and overall notary costs.

From an interest rate perspective, the mortgage for purchase and renovation generally benefits from the same conditions applied to traditional home loans, which are historically more favorable than consumer credit products. The result is a lower overall monthly payment and a more solid medium- to long-term financial plan, with real savings on the total amount of interest paid over the repayment period.

Second advantage: flexibility of use

Unlike a standard mortgage, in a renovation financing the capital is not disbursed in a single payment but is made available in successive tranches, linked to the actual progress of the construction site according to the Work Progress Status (SAL) mechanism. This approach protects both the buyer and the lending institution, ensuring that funds are always proportional to the work actually completed.

The SAL-based structure offers the buyer precise and continuous control over the management of resources: payments to contractors are made in a scheduled and verifiable way, significantly reducing the risk of mismatches between available funds and construction needs. This results in a more transparent management of the entire process, with the bank, through its technical inspections, playing an indirect monitoring role over the quality and timing of the works.

Third advantage: property value enhancement

Investing in renovation means directly acting on the variables that determine a property’s value. A well-planned project — including the replacement of systems, the upgrading of interior spaces, and improvements to finishes — can lead to a significant increase in the sale value, often higher than the cost of the works themselves. In a selective market such as luxury real estate, the quality of the finished property is a key factor in how potential buyers perceive its value, recognizing it as a potentially more profitable real estate investment.

Why rely on Engel & Völkers

Purchasing a property to renovate requires expertise that goes far beyond finding the right home. It calls for integrated advisory services, capable of supporting the buyer in assessing the property’s potential, identifying the most suitable financing solutions, and managing the operational phases after the deed is signed.

Engel & Völkers advisors support buyers in selecting properties with the highest value-creation potential, guide them toward the most competitive renovation mortgage options, and facilitate connections with a well-established network of qualified professionals to ensure transparent and secure management of the entire process, from planning to handover of the keys.