What Is Equity? How It Works and How to Use It
Equity is one of the most powerful financial tools available to property owners. Whether you’re planning to renovate, invest, consolidate debt, or simply build long-term wealth, understanding how equity works can open doors to new opportunities.
Put simply, equity is the difference between your property’s current market value and the amount you still owe on your home loan.
How Equity Works
Equity grows over time as your property value increases and as you pay down your loan balance.
For example, if your home is worth $800,000 and your loan balance is $500,000, you have $300,000 in equity.
Your equity can grow faster through:
Regular loan repayments
Lump-sum payments
Renovations that increase property value
Market growth in your area
While you technically “own” this equity, you can’t access it unless you tap into it through your home loan.
Using Your Equity
Homeowners can use equity to help achieve a range of personal or financial goals. Some common uses include:
Renovations & Improvements
Equity can be accessed to fund upgrades like kitchens, bathrooms, landscaping, extensions, or adding value through cosmetic improvements.
Property Investment
Many Australians use equity to cover the deposit and costs on an investment property. This strategy allows you to grow your property portfolio without needing large cash savings.
Debt Consolidation
Equity can help you roll multiple debts — such as credit cards, personal loans, or car loans — into a single, lower-rate home loan, reducing your monthly expenses.
Big Life Purchases
Some lenders allow equity to be used for major purchases like a new car, business investment, or education expenses.
Available Equity vs Usable Equity
Not all of your equity is accessible. Lenders typically let you borrow up to 80% of your property’s value without paying Lenders Mortgage Insurance (LMI).
How to Calculate Usable Equity
Step 1 - Work out 80% of your home’s value
Step 2 - Subtract your current loan balance
Example
Property value: $800,000
80% of value: $640,000
Loan balance: $500,000
Usable equity: $140,000
If you need to borrow above 80%, you may still access more equity — but LMI costs can apply.
When Should You Use Equity?
Equity can be a strategic tool, but it’s important to use it wisely. It may be suitable if:
You’re planning renovations that improve your home’s value
You want to start or expand your investment portfolio
You’re looking to consolidate debt into a lower-interest structure
You have stable income and can comfortably manage repayments
A Mortgage Broker can help ensure the decision aligns with your long-term goals.
Equity Release vs Refinancing
There are two common ways to access your equity:
Equity Release (Top-Up Loan)
You increase your existing loan limit to unlock available equity. This is often simple and doesn’t require switching lenders.
Refinancing
You move your loan to a new lender to release equity while also improving your interest rate, loan structure, or features.
Refinancing can be beneficial if your current lender’s equity-release options are limited or if better rates exist elsewhere.
Benefits of Using Equity
Unlocking equity can offer several advantages:
Access to funds without selling your home
Lower interest rates compared to personal loans or credit cards
Opportunity to build wealth through property investment
Flexibility to improve your home or financial position
Potential tax benefits for investment purposes (speak with your accountant)
Risks to Consider
While useful, accessing equity involves borrowing more money. Key considerations include:
Higher loan repayments
Potential impact on borrowing capacity
Risk of over-leveraging if property values fall
LMI costs if borrowing above 80%
It’s always best to seek professional guidance before moving ahead.
The Bottom Line
Equity can be a powerful tool to help you renovate, invest, consolidate debt, or achieve major financial goals — all without dipping into your savings.
If you’re unsure how much equity you have or how to use it effectively, speak with a Mortgage Broker who can assess your situation, explain your options, and help you structure your loan in a way that supports your long-term wealth-building strategy.