How does home re-valuing work?

Long story short, we're looking at a PPOR which we'd like to reno and sell in a year or two.

My broker has spoken a bit about home re-valuing and drawing out funds from a mortgage to do a reno with, and I'm a bit confused about how the whole thing works. Is the scenario:

- We buy a place for $1mil, go on a variable loan, mortgage is $850k + LMI
- In 6 we've paid off $25k in repayments.
- In 6 months comparable houses in the street/area sell for $1.2mil
- We get our home revalued at $1.2mil.
- Let's say that with our minimal repayments our mortgage is still $850k.

So how does refinancing / revaluing the mortgage work here? If our home is worth $1.2mil and we have an $850k loan, am I right in thinking:

- We could draw out another $200k or so if we wanted (or whatever it is to keep the same LVR)
- The loan would then be ~$1.05mil on a $1.2mil house
- Would the bank give us this money in cash? Or pay directly to construction company et al?

Is there a blog post or something with a how-to guide on this? I'm a noob and confused.

 

Borrow up to 80/90% of the property, less existing loans
Depending on the amount and the use the bank would give you cash.

Terryw’s Ideal Loan Structure Terryw’s Ideal Loan Structure