A home equity loan lets you borrow against the value you’ve built up in your property. Most Australians can safely access equity up to 80% of their property value, often at standard home loan interest rates.
Equity is commonly used for investing, renovations, or debt consolidation. Used strategically, it can build wealth. Used poorly, it can erode long-term financial security.
What Is A Home Equity Loan?
A home equity loan allows you to borrow money using your home as security. The amount you can access is based on the difference between your property’s value and what you still owe on your mortgage. Funds can be used for investing, renovations, or consolidating debt.
A simple definition for a home equity loan would be:
Equity = Property Value − Mortgage Balance
If your home is worth $900,000 and your loan balance is $500,000, your equity is $400,000. At 80% LVR, you may be able to access part of that equity as a loan.
How Does A Home Equity Loan Work In Practice?
A home equity loan usually involves refinancing your existing mortgage.
The lender reassesses your property value, income, and expenses, then increases your loan limit. The extra funds are released as a lump sum, split loan, or line of credit depending on the structure.
Step-by-Step – How Equity Is Released
- Your property is valued by the lender
- Your usable equity is calculated (usually up to 80% LVR)
- Your income and liabilities are assessed
- Your existing loan is refinanced
- Equity is released into a new loan split or account
What Can I Use My Home Equity For?
You can use Home Equity for most purposes which includes investing, renovations, debt consolidation, and major expenses. Lenders may ask for evidence of how the funds will be used, especially for large cash-out amounts.
- Buying an investment property
- Renovating or rebuilding your home
- Investing in shares or managed funds
- Consolidating credit cards or personal loans
- Buying or expanding a business
- Large expenses (medical, education, family support)
Important: Equity cannot be used for illegal purposes. Some lenders also allow refinancing to repay ATO debt, but this depends on your circumstances.
Is A Home Equity Loan Right For Me?
A home equity loan is best suited to borrowers with stable income, strong spending discipline, and a clear repayment strategy. It’s generally cost-effective up to 80% LVR. Borrowing more than this usually requires LMI and increases long-term risk.
Here’s a simple decision framework you can use to
Equity loan makes sense if:
- You have a clear purpose and expected return
- You can service the loan comfortably
- You’re not using equity to fund everyday spending
Equity loan is risky if:
- You’re consolidating debt repeatedly
- You don’t have a repayment plan
- You’re close to retirement with limited income growth
How Much Equity Can I Release ?
Most lenders allow equity release up to 80% of your property’s value without LMI. Some lenders go up to 90%, but this usually triggers a one-off Lenders Mortgage Insurance (LMI) premium and stricter assessment criteria.
Typical Equity Loans
| Loan-to-Value Ratio | What It Means |
|---|---|
| Up to 80% | Lowest risk, no LMI |
| 80%–90% | LMI usually required |
| Above 90% | Rare, specialist lenders only |
Are Interest Rates Higher For Home Equity Loans?
No. Home equity loans usually have the same interest rates as standard home loans.
The main exception is line of credit products, which often carry higher rates and fees. Comparing lenders and loan structures is key to keeping costs down.
Is A Line Of Credit The Best Way To Access Equity?
Not always. While lines of credit offer flexibility, they often come with higher interest rates and make overspending easier.
Many borrowers are better suited to a split loan with an offset account, which offers control without constant access to funds.
| Option Best For | Benefits | Main Risk |
|---|---|---|
| Line of credit | Flexible, short-term access | Overspending |
| Loan split + offset | Long-term planning | Less instant access |
Why Do Banks Limit Cash-Out Equity Loans?
Banks limit cash-out because they need confidence the funds will be used responsibly.
Many lenders restrict cash-out to $10,000 to $50,000 unless the purpose is clearly documented. Not all lenders apply the same restrictions.
If you want equity for investing – Structure the equity loan separately from your home loan to keep interest tax-deductible and easy to track.
If you’re consolidating debt – Only do it once. Close old credit cards and personal loans immediately to avoid rebuilding debt.
If you recently bought your home – You may not have usable equity yet. Most equity comes from price growth over time, not early repayments.
Can I Get A Low-Doc Home Equity Loan?
Yes, but options are limited. Most low-doc equity loans are capped at 60% LVR. Some specialist lenders allow up to 80% at higher interest rates. Income is assessed using a signed declaration instead of full financials.
Here are the low-doc equity loan basics:
- No tax returns required in many cases
- Income assessed via declaration
- LMI often applies above 60% LVR
Can I Consolidate Debt Using Home Equity?
Yes. Debt consolidation is one of the most common equity uses. Credit cards often charge 10–30% interest, while personal loans range from 9–15%. Rolling these into a home loan can significantly reduce repayments and total interest paid.
Most major lenders require on-time repayments for:
- The last month on unsecured debts
- The last six months on your home loan
What Proof Do Lenders Need For An Equity Loan?
Lenders ask for contracts, invoices, or written explanations showing how the funds will be used. This is especially common for large cash-out requests. Clear documentation improves approval chances and access to higher loan amounts.
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Learn MoreApply For An Equity Release Home Loan
Call us on 1300 889 743 or fill our free assessment form to discover if you qualify for an equity release home loan.