If you’ve been paying down your mortgage and your property has increased in value, you may be sitting on a powerful financial resource, your home equity. Knowing how to access equity in your home can help you unlock funds for primary life goals, such as renovating your home, investing in a second property, consolidating debt, or even starting a business.
Before accessing your home equity, it's crucial to understand how it works, how much you can safely borrow, and which strategy best aligns with your financial goals.
In this guide, we’ll walk you through how to access equity in your home, the pros and cons, and how to make wise, strategic choices using your equity.
What is Home Equity?
For many Australians, their home is more than just a place to live, it’s their most valuable financial asset. Over time, as you pay off your mortgage and your property value increases, you build what’s called home equity.
Home equity is the difference between your property’s current market value and the balance remaining on your mortgage. It represents the portion of your home that you truly own, and it’s a powerful financial tool when used wisely.
By understanding how to calculate home equity and assess your borrowing capacity, you can unlock opportunities for funding home renovations, purchasing a second property, or consolidating debt.
Understanding How to Access Equity in Your Home
Once you’ve built up equity, the next step is knowing how to access home equity and choosing the right method to match your financial goals. Depending on your needs, risk appetite, and borrowing power, there are several options available in Australia to tap into your home’s value.
1. Home Equity Loan
A home equity loan is a type of second mortgage that allows you to borrow a lump sum using your home’s equity as collateral. It’s ideal for one-time expenses, such as major renovations or funding a business. These loans usually come with a fixed interest rate and predictable home loan repayments.
Best suited for: Individuals with significant upfront costs and those who prefer fixed repayment terms.
2. Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) functions similarly to a credit card. You’re approved for a borrowing limit based on your equity, and you can draw from it as needed. This offers flexibility, especially for ongoing expenses like staged renovations or investment opportunities.
Best for: Flexible access to funds over time.
3. Mortgage Refinancing
Mortgage refinancing involves replacing your existing loan with a new one, typically with more favourable terms or a higher loan amount. Through a cash-out refinance, you may be able to withdraw a portion of your equity in cash, while potentially reducing your interest rate or extending your loan term.
Best for: Individuals seeking to reduce repayments, access funds, or consolidate debt.
4. Reverse Mortgage (for older Australians)
If you’re over 60, a reverse mortgage allows you to convert part of your home equity into tax-free income, without selling your home or making regular repayments. The loan is repaid when the home is sold, typically after the borrower moves out or passes away.
Best for: Seniors needing extra income in retirement.
The right method for accessing your equity will depend on your financial situation, goals, and the amount of equity you have available. At Stryve Finance, we tailor solutions to your goals, whether it’s home equity for property investment, renovations, or debt consolidation.
Steps to Access Your Home Equity
Accessing your home equity involves more than just knowing it exists. It requires careful planning, meeting specific financial eligibility criteria, and understanding the lender’s requirements. Here’s a step-by-step breakdown of what you need to do to access home equityeffectively and responsibly.
Step 1: Calculate Your Available Equity
Before anything else, you need to understand how much equity you have and how much of it you can actually use. Here’s how:
Formula:
Home equity = Property’s market value - Outstanding home loan balance
For example, if your home is valued at $900,000 and your mortgage balance is $450,000, your equity is $450,000.
However, lenders typically allow you to borrow up to 80% of your property’s value (sometimes more with Lenders Mortgage Insurance [LMI]), which brings us to the next concept...
Step 2: Know Your LVR (Loan-to-Value Ratio)
Your LVR (Loan-to-Value Ratio) is the percentage of your home’s value that you owe to the bank. It’s one of the biggest factors lenders consider when approving home equity withdrawal.
Example:
Property value = $800,000
Mortgage = $500,000
LVR = ($500,000 ÷ $800,000) × 100 = 62.5%
Loan-to-Value Ratio (LVR) Comparison
| LVR | Description | Eligible Borrowing Limit | Cost (with LMI) |
|---|---|---|---|
| 60% | Low-risk borrowing | Up to 60% of home’s value | No LMI |
| 70% | Moderate-risk, lower repayments | Up to 70% of home’s value | Lower LMI |
| 80% | Standard borrowing limit | Up to 80% of home’s value | Standard LMI |
| 90% | Higher risk, requires LMI | Up to 90% of home’s value | High LMI |
If your LVR is below 80%, you’re generally in a strong position to access equity without paying LMI. If it’s above 80%, you may still access equity, but at a higher cost and with more restrictions.
Step 3: Check Your Eligibility
Even if your numbers look good on paper, you’ll still need to meet standard lending criteria, such as:
- Stable income and employment
- Good credit history
- Acceptable home loan repayment history
- Type and location of the property
Lenders will also consider the purpose of your equity use, for example, home equity for property investment may be viewed differently than funding a renovation.
Step 4: Choose the Right Access Option
Once you’ve confirmed your equity and eligibility, decide on the best method, whether it’s a home equity loan, HELOC, or mortgage refinancing.
Tip from Stryve:
The more strategic your reason (e.g. home equity for investment or debt consolidation), the better your chances of approval and getting a favourable rate.
How Much Equity Do You Need to Access?
One of the most common questions we hear at Stryve Finance is: “How much equity do I need to access?”
While your total home equity may be substantial, lenders won’t allow you to borrow all of it. Generally, banks will let you borrow up to 80% of your property’s current value, known as theusable equity threshold.
| Property Value | Mortgage Balance | 80% LVR | 90% LVR | Usable Equity at 80% LVR | Usable Equity at 90% LVR |
|---|---|---|---|---|---|
| $700,000 | $350,000 | $560,000 | $630,000 | $210,000 | $280,000 |
| $850,000 | $450,000 | $680,000 | $765,000 | $280,000 | $315,000 |
| $900,000 | $500,000 | $720,000 | $810,000 | $220,000 | $310,000 |
How to Work It Out
Let’s say:
- Your home is worth $850,000
- Your remaining mortgage balance is $400,000
- 80% of your property value is $680,000
Your usable equity would be: $680,000 - $400,000 = $280,000
This $280,000 is the maximum amount you could potentially access through a home equity loan, HELOC, or mortgage refinancing, without triggering Lenders Mortgage Insurance (LMI).
Going Above 80% LVR?
If you want to access more than 80% of your home’s value, you’ll likely need to pay LMI, which protects the lender (not you) in case of default. While this allows you to borrow more, it increases your costs and should be carefully weighed against the benefits.
At Stryve Finance, we’ll help you calculate the most cost-effective strategy based on your LVR and financial goals.
Tip: Some lenders may cap usage at 70% for home equity for property investment, while others allow higher borrowing for home renovations with equity or debt consolidation.
That’s why working with a mortgage broker who knows the lending landscape is critical.
Common Uses for Home Equity
Once you’ve unlocked your available equity, the real power lies in how you use it. Many Australians utilise their equity to build wealth, enhance their lifestyle, or manage financial obligations more effectively.
Here are the most common (and strategic) ways to use your home equity:
Common Uses for Home Equity
1. Home Renovations with Equity
Thinking about a new kitchen, bathroom upgrade, or extending your living space? Using home equity for renovations is one of the most popular strategies, and for good reason. Well-planned renovations can not only improve your quality of life but also increase your property’s value, which in turn helps build more equity.
Ideal for: Boosting property value and lifestyle without draining savings.
2. Home Equity for Property Investment
Many Australians use their existing home as a source of funds for the deposit on a second property. Accessing home equity for property investment means you may not need any additional cash, your equity becomes your deposit.
By investing in a second property, you could:
- Diversify your income
- Take advantage of market growth
- Build long-term wealth through capital gains and rental yield
This is a common strategy known as leveraging equity, but it must be approached with care to manage home equity risk.
3. Home Equity for Debt Consolidation
If you’re juggling multiple high-interest debts, like credit cards or personal loans, you can use your equity to consolidate debt into one lower-interest home loan. This can reduce stress, lower your total repayments, and help you regain control of your finances.
Consider this option if your goal is to simplify repayments and save on interest.
4. Other Lifestyle Goals
Some homeowners access equity to fund:
- Children’s education
- Business start-ups
- Travel or significant life events (weddings, medical costs)
While possible, it’s crucial to treat these decisions with the same discipline as an investment, your home is on the line.
Regardless of your reason for accessing equity, Stryve Finance can help you choose the most effective strategy, tailored to your financial goals and risk tolerance.
How to Build Equity in Your Home
Whether you’re just starting out or already a seasoned homeowner, building home equityshould be a long-term goal. Building more equity in your home provides greater financial flexibility, enabling you to refinance, invest, or access funds as needed.
Here are the most effective ways to increase home equity:
1. Pay Down Your Mortgage Faster
Every home loan repayment reduces your principal balance and increases your equity. You can accelerate this by:
- Making extra repayments (even small ones)
- Switching to fortnightly instead of monthly payments
- Using an offset facility
The faster you reduce your debt, the larger the gap between your home’s value and what you owe, giving you greater equity to access later.
2. Improve Your Property’s Value
Strategic renovations can significantly increase your home’s market value, particularly in competitive suburban areas. High-ROI upgrades include:
- Kitchen and bathroom remodels
- Outdoor living improvements
- Energy-efficient upgrades (such as solar and insulation)
These improvements not only enhance your living space but can also increase your property’s value, helping you build equity faster.
3. Hold Your Property Long-Term
In a growing market, simply owning your home for several years may naturally lead to capital growth. As your property appreciates, so does your equity without lifting a finger.
While the market can fluctuate, historical trends in Australia indicate that real estate tends to appreciate over the long term, particularly in high-demand locations.
Want to know how much equity you’ve built? Stryve Finance can help assess your position and explore your options.
Is Accessing Home Equity Right for You?
Understanding how to access equity in your home gives you the power to turn your property into a tool for wealth creation, lifestyle improvement, or financial relief. Whether you’re looking to renovate, invest, or consolidate, the equity you’ve built could be the key to unlocking those goals, without dipping into savings or taking on unsecured debt.
But tapping into your equity isn’t something to rush into. It’s important to consider:
- How much you can access without triggering Lenders Mortgage Insurance (LMI)
- Your Loan-to-Value Ratio (LVR) and borrowing capacity
- The home equity risk is involved if your circumstances change
That’s where we come in.
Let Stryve Finance Help You Unlock Your Potential
At Stryve Finance, we don’t just find you a loan, we help you build a strategy. Whether you’re interested in a home equity loan, a flexible home equity line of credit (HELOC), or refinancing for a better deal, our expert mortgage brokers will guide you every step of the way.
- Get expert advice
- Access competitive loan products
- Take control of your financial future
Let’s make your equity work harder for you.
Frequently Asked Questions (FAQs)
Can I use home equity to buy a second home?
Yes, this is a common strategy. Many borrowers use their home equity as a down payment for a second home or an investment property. Your usable equity becomes your leverage; however, be mindful of the risk associated with home equity if property values drop or interest rates rise.
Is home equity withdrawal taxable in Australia?
Generally, no. Withdrawing equity from your home is not taxable because it’s considered a loan, not income. However, any investment returns made with the funds (e.g., rental income, capital gains) may be taxable. Always consult a tax advisor.
What’s better: a home equity loan or refinancing?
It depends on your goals:
- A home equity loan is best for one-time large expenses with predictable repayments.
- Mortgage refinancing is ideal if you’re looking to restructure your existing loan, possibly lower your interest rate, and access funds.
How does a HELOC differ from a home equity loan?
A HELOC offers flexible, ongoing access to your equity (like a credit card), while a home equity loan gives you a fixed lump sum. Both are secured against your property, but HELOCs typically have variable rates, while equity loans often offer fixed repayments.
What are the risks of using home equity?
Using equity increases your debt, which means higher home loan repayments and potential risk if:
- Property values fall
- Your income changes
- You over-leverage and struggle to meet repayments
That’s why careful planning and expert advice from a mortgage broker is essential.
This article is intended to provide general information only. It does not take into account the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.
Dylan Bertovic is the Director and Senior Finance Broker at Stryve Finance, specialising in non-traditional lending solutions. He helps clients across Australia with tiny home loans, construction finance, equipment and asset lending, refinancing, and investor loans. With deep expertise in self-employed and renovation mortgages, Dylan is known for crafting tailored strategies that get results
