An equity loan lets you borrow against the value you’ve built in your home to invest, renovate, buy property, or consolidate debt.
Options include shared equity loans, property share loans, seniors equity loans (reverse mortgages), and flexible structures like offset home loans or lines of credit. The best choice depends on risk tolerance, cash flow, and long-term plans.
What Is An Equity Loan And How Does It Work?
An equity loan allows you to access the difference between your property’s value and your existing mortgage. The lender uses your home as security, and you can use the funds for investing, renovations, or lifestyle needs while continuing to own the property.
If your home is worth $800,000 and you owe $400,000, you may be able to borrow against part of the remaining $400,000, subject to lending limits and serviceability.
What Can You Use An Equity Loan For?
You can use an equity loan for:
- Buying an investment property
- Purchasing shares or other investments
- Renovations or extensions
- Debt consolidation
- Retirement income support
- Purchase Price: $500,000
- Loan: $400,000
- Shared Equity Portion: $100,000 (20%)
- Interest charged only on part of the loan
- Capital Gain: $100,000
- Lender’s Share (40%): $40,000
- Lower or no repayments on the shared portion
- Higher borrowing capacity
- You give up future capital growth
- Poor value in high-growth markets
- Property price: $500,000
- John deposits $100,000 for a loan of $150,000
- Adam deposits $50,000 for a loan of $200,000
- Interest compounds monthly
- Equity reduces over time
- Estate value may fall sharply
- It has a higher interest rate than some of the alternatives
- It doesn’t have a set repayment schedule
- It functions more like a large overdraft
- Up to 10 sub-accounts
- Different borrower names
- Changes without full reassessment
- Banks can reduce unused limits at any time
- No end date means no automatic payoff
- Missed “minimum” repayments can freeze access
- Clarify your goal (investment, lifestyle, retirement)
- Choose structure first, rate second
- Stress-test repayments at higher rates
- Decide on an exit strategy
- Get independent advice
If the new debt improves cash flow or long-term wealth, equity can be a powerful tool. If it funds consumption without a repayment plan, risk rises quickly.
What Types Of Equity Loans Are Available?
Equity loans come in several forms, each suited to different goals. Some reduce repayments today but cost more long-term. Others offer flexibility but require discipline. Understanding how interest, ownership, and repayments work is critical before choosing a product.
What Is A Shared Equity Loan?
A shared equity loan lets you borrow part of a property’s value interest-free. In exchange, the lender takes a share of future capital gains when you sell or refinance.
How Does A Shared Equity Loan Work?
If the property sells for $600,000:
Benefits
Drawbacks
Best used when you expect low short-term growth or need to maximise borrowing now.
What Is A Property Share Loan?
A property share loan allows multiple buyers to purchase one property while holding separate loan accounts in their own names, all secured by the same property.
Example Scenario
Each owns 50%, but with different loan balances.
Important Risk To Understand
If one borrower defaults, the other is legally responsible. So, If John misses repayments, the bank can demand Adam covers them.
What Is A Seniors Equity Loan?
A seniors equity loan (also referred to as a reverse mortgage), allows homeowners aged 60+ to release equity as a lump sum or regular income, with no repayments required during their lifetime.
Interest compounds over time and is repaid when the property is sold or from the estate. While useful for cash flow, it significantly reduces inheritance value.
Some key considerations for this type of loan is:
Always seek independent legal and financial advice and inform next of kin before proceeding.
Line Of Credit Vs 100% Offset – Which is better?
Though banks push for lines of credit, a 100% offset home loan is usually a much safer, cheaper, and easier to manage option.
And while lines of credit offer flexibility, it also increases risk of overspending and may result in long-term debt if it’s uncontrolled.
| Feature | Line Of Credit | 10)% Offset Loan |
|---|---|---|
| Interest Rate | Higher | Lower |
| Repayment Discipline | Optional | Structured |
| Risk of Misuse | High | Low |
| Best For | Sophisticated Investors | Most Homeowners |
Are Bank Line Of Credit Equity Loans Worth It?
Bank lines of credit can work for experienced investors with irregular income, but they are often expensive and easy to mismanage. Many borrowers end up paying interest indefinitely without reducing the balance.
How Does The CBA Viridian Line of Credit work?
CBA’s Viridian Line of Credit has no fixed term or principal repayment requirement. As long as interest and fees are paid, the loan remains active. It is great for investors with clear exit strategies.But without discipline, the debt may never reduce.
Is The ANZ Equity Manager A Good Option?
No, the ANZ line of credit isn’t a good option because:
However, it is a great option if you are a financially sophisticated investor with strict controls.
What Is The St.George Portfolio Loan?
The St.George Portfolio Loan combines line-of-credit flexibility with mandatory monthly interest repayments on the main account.
A few notable features of it includes:
The biggest trade off, however, is the higher interest rate.
How Does The Westpac Equity Access Loan work?
Westpac’s revolving credit facility allows interest to capitalise if repayments aren’t made, provided the balance stays under the limit. It is useful if you have irregular income. But this facility can be easy to overuse if you don’t have strict budgeting.
What Are The Hidden Risks Of Equity Loans?
Equity loans often come with conditions borrowers don’t expect. Limits can be reduced, repayments can be technically missed, and balances can grow indefinitely. So, you need to understand the fine print.
Here are a few hidden risks
Even after large repayments, skipping one month can lock your funds.
How Do You choose The Right Equity Loan?
You can choose the right equity loan by following the steps below:
Apply For An Equity Loan
Our mortgage brokers are specialists in all types of equity release loans. We can quickly work out the best options for you and then help you to get a speedy approval.
Please call us on 1300 889 743 or enquire online today.