Equity is the part of your home you own, and refinancing is one way to borrow against it. If you've owned in South West Sydney for a while, you may be able to use that equity for a renovation, an investment or to clear other debts.
This guide walks through how it works, what lenders look at, and the trade-offs you should weigh up before you borrow more.
What Does It Mean to Release Equity From Your Home?
Releasing equity means borrowing against the gap between your home's value and your loan balance. You usually do it by refinancing to a bigger loan with a new or existing lender, then receiving the extra amount as cash.
Equity is your property's value minus what you owe. As you pay down your loan, or if your property value rises, that gap can grow. The catch is that the extra money is still debt. It sits on your home loan and you pay interest on it until it's repaid.
How Much Equity Can You Actually Access?
Usable equity is the amount you can borrow after the lender applies its maximum loan to value ratio (LVR) to your property's value. It is always less than your total equity.
LVR is your loan divided by your property's value. Say a lender will lend up to 80% of value and your loan sits at 60%. The 20% gap is your potential usable equity. The limit varies by lender, your deposit position and your borrowing profile, and the lender will arrange its own valuation, which may differ from what you expect.
Usable equity also depends on whether you can afford the higher repayments. Our borrowing capacity page explains how lenders assess that side of the equation.
Refinance or Top Up: Which Way Should You Release Equity?
A top up increases your loan with your current lender, while a refinance moves your loan to a new lender with a larger balance. A top up with your current lender may be simpler for some borrowers, while a refinance lets you compare lenders on rate and features. Timing varies by lender.
The trade-off is cost and effort. Switching lenders can involve discharge or application fees, depending on your current and new lender, and you'll go through a full application again. Staying put avoids that, but you may be left on a rate that has drifted above what new customers are offered. Our refinancing page covers how a broker compares those options for you.
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Book a chat with a Finance & Mortgage Broker at Credible Finance today.
What Can You Use Released Equity For?
People commonly use released equity for renovations, investment purchases, business needs or consolidating debts. The purpose matters because it affects both your risk and how the interest is treated for tax.
- Renovations: Work that lifts your home's livability or value, while keeping you in a suburb you love.
- Investing: Equity can fund a deposit on an investment property. See our investment loans options if that's on your radar.
- Debt consolidation: Rolling credit cards or personal loans into your home loan can lower your monthly repayments. Spreading those debts over the loan term usually means you pay more interest overall, and you'll still be paying for them years later. It only helps if you don't rebuild those debts, and you may want to make extra repayments to clear the consolidated amount faster.
If you plan to use borrowed funds for investment or business, speak to your accountant about how interest is treated. Tax outcomes depend on your circumstances and are never certain.
Example: A $50,000 Renovation Top Up at 6.75%
Borrowing an extra $50,000 over 25 years at an illustrative 6.75% p.a. adds roughly $345 a month to your repayments. Here is how that plays out in a realistic scenario.
Consider a homeowner in Edmondson Park who wants to renovate the kitchen and add a second bathroom. Their loan is well under the lender's maximum LVR, so there is room to borrow. They work with a broker, who compares lenders and arranges a refinance that includes an extra $50,000, paid into their account as cash.
At the illustrative 6.75% rate, principal and interest repayments on that extra $50,000 over a 25 year term come to about $345 a month. The homeowner checks that this fits their budget alongside their existing repayments before proceeding. The renovation goes ahead and the household has a clear picture of the new repayment from day one.
The risk is in the term. Spreading renovation debt across a long loan keeps repayments low, but you pay interest for longer than you would on a short-term loan. Making extra repayments, if your loan allows them, can offset that. The actual rate you receive will depend on your deposit position and lender, so run your own numbers through a refinance calculator.
What Are the Risks of Borrowing Against Your Home?
The main risk is that your home secures a larger debt, so if you can't meet repayments, your property is at stake. Higher borrowing also leaves you less cushion if rates rise or your income changes.
A few other costs and trade-offs to weigh up:
- A bigger loan means higher repayments, and a variable rate can change.
- Lenders may charge lender's mortgage insurance if your new LVR passes their threshold.
- Fixed rate loans can carry break costs if you leave early. If your fixed term is ending soon, our fixed rate expiry page is worth a read first.
Borrowing for a purpose that doesn't build value, such as a holiday, needs extra thought because you'll be paying it off long after the trip.
How to Check Your Position Before You Apply
Start by estimating your property's value and your loan balance, then work out your LVR. A broker can then compare lenders' policies and tell you how much you may be able to access.
It also helps to review your current loan first. A loan health check shows whether your rate, fees and features still suit you, which can change whether a refinance is worthwhile. If you're in Liverpool, Leppington, Carnes Hill or Cecil Hills, a local mortgage broker in Liverpool can sit down with you and map out the numbers.
Call one of our team or book an appointment at a time that works for you. We'll check your equity position, explain the costs in plain English, and show you whether releasing equity makes sense for your goals.
Frequently Asked Questions
What is the difference between total equity and usable equity?
Total equity is your property's value minus your loan balance. Usable equity is what you can borrow after the lender applies its maximum LVR, so it is always lower.
Do I have to change lenders to release equity?
No. You can ask your current lender for a top up, or refinance to a new lender with a larger loan. Comparing both options helps you weigh convenience against rate and fees.
How much would an extra $50,000 cost per month?
At an illustrative rate of 6.75% p.a. over 25 years, an extra $50,000 adds about $345 a month in principal and interest. Your actual rate and repayment will depend on your lender and circumstances.
Is the interest on released equity tax deductible?
It depends on what you use the money for. Speak to your accountant, as tax outcomes vary and are never certain.
