Releasing Equity From Your Home
What home equity is, how much you may be able to access, and the smart and risky ways to use it, explained simply by an Adelaide mortgage broker.
Equity is the share of your home you actually own, the gap between what it is worth and what you still owe. As you pay your loan down and your property value rises, that equity grows, and you can often put it to work without selling. Releasing equity means refinancing or increasing your loan to draw part of that value as usable cash. Used well it can fund a renovation, an investment, or other goals at home loan rates rather than expensive personal debt. Used carelessly it simply adds long term debt you pay interest on, so it pays to go in clear eyed.
How much equity can you actually use?
Usable equity is not the same as your total equity. As a general guide, many lenders let you borrow up to 80 percent of your property value, then subtract what you still owe, and the difference is what you may be able to access without paying lenders mortgage insurance. The exact figure depends on the lender, the valuation and your borrowing capacity.
- Take 80 percent of your property value.
- Subtract the balance you still owe.
- What remains is a guide to your usable equity.
- Going above 80 percent may trigger lenders mortgage insurance.
What people use released equity for
Lenders generally want to know the purpose, and some uses are easier to approve than others. Putting equity toward something that grows your position tends to sit better, with both the lender and your future self, than spending it on things that lose value.
- Renovating or extending your home.
- A deposit for an investment property.
- Consolidating higher interest debts.
- Major one off costs, assessed case by case.
The interest you pay on what you release
This is the part to be clear eyed about. Releasing equity is borrowing, so you pay interest on whatever you draw, usually spread over the remaining term of your loan, and your repayments may rise. A sum that feels small today can cost far more across twenty or thirty years of interest. It is a powerful tool when it funds something that builds your position, such as a value adding renovation or an investment, and an expensive one when it funds everyday spending.
How lenders assess an equity release
Accessing equity is not automatic. The lender reassesses your ability to repay the larger loan, orders a valuation of your property, and often asks what the funds are for. If your income or expenses have changed since you first borrowed, that can affect how much you are able to release. Going in with your paperwork ready makes the process smoother.
Equity release in retirement is different
For older homeowners, equity release can also mean a reverse mortgage or the government Home Equity Access Scheme, which work very differently to a standard loan increase and carry their own rules, costs and risks. If you are in or near retirement, treat this as a separate decision and get specific advice before acting.
Is releasing equity right for you?
The honest answer depends on what the money will do and what it will cost. If it funds something that adds value or income and you can comfortably carry the larger repayment, it can be a smart move. If it funds spending that disappears, the long run interest usually outweighs the short term convenience. Running your actual numbers first is the difference between a good decision and an expensive one.
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Equity Release: common questions
What is equity release on a home loan?
Equity release means borrowing against the value you have built up in your home, by increasing your loan, so you can use that money as cash for things like renovations, investing, or other goals, while keeping the home.
How much equity can I access from my home?
Lenders usually let you borrow up to around 80 percent of your home value before lenders mortgage insurance applies. Your usable equity is roughly that 80 percent figure minus what you still owe, subject to your income supporting the larger loan.
What is usable equity and how is it calculated?
Usable equity is the portion of your equity a lender will actually let you borrow against. A common guide is around 80 percent of your property value, minus the balance you still owe on your loan.
What can I use released equity for?
Common uses include renovating, buying an investment property, funding a deposit, consolidating debt, or other approved purposes. Lenders generally ask what the funds are for, and some purposes are treated differently for rate and tax.
Why do lenders ask what the cash out is for?
Lenders ask because responsible lending rules require them to understand the purpose, and because the purpose affects how they assess and price the loan. Larger cash out amounts may need evidence, such as a renovation quote or purchase plan.
Does releasing equity increase my repayments?
Yes. Releasing equity increases your loan balance, so unless you extend the term or change the structure, your repayments generally rise. The increase depends on how much you draw, the rate, and the loan term.
Will I pay lenders mortgage insurance when releasing equity?
If releasing equity pushes your loan above around 80 percent of your home value, lenders mortgage insurance usually applies. Keeping the new loan at or below 80 percent generally avoids it.
What is the difference between equity release and redraw?
Redraw lets you pull back extra repayments you have already made on your loan. Equity release is a new approval that increases your loan to access the growth in your property value. Redraw needs no new application; equity release does.
Can I use equity to buy an investment property?
Yes, this is one of the most common uses. You release equity from your home to fund the deposit and costs of an investment property, rather than using cash savings, subject to your borrowing capacity.
Can I use equity to renovate my home?
Yes. Releasing equity is a common way to fund renovations without dipping into savings. For cosmetic work it is straightforward, while large structural builds may need a construction style loan instead.
Do I have to refinance to release equity?
Not always. Some lenders allow an equity release or loan increase with your current lender, which can be simpler. Other times refinancing to a new lender unlocks more equity or a better rate at the same time.
Can I release equity if I am self-employed?
Yes. Self-employed borrowers can release equity, though you will need to evidence your income, usually with tax returns, or through alternative documentation if your returns are not finalised. The property and serviceability tests still apply.
What does it cost to release equity?
Costs vary by lender and whether you refinance. They can include a valuation, loan or application fees, and government registration fees. A top up with your current lender often costs less than a full refinance.
How long does an equity release take?
A straightforward top up with your current lender can be quick, sometimes a couple of weeks. Releasing equity through a full refinance to a new lender usually takes longer, often a few weeks, depending on valuation and lender timing.
What are the risks of releasing equity?
The main risks are borrowing more than you need, higher repayments, and using the funds for things that do not build value. Releasing equity also reduces the buffer in your home, so it should serve a clear, sensible purpose.
Can I release equity without selling my home?
Yes. Releasing equity means borrowing against your home by refinancing or increasing your loan, so you keep living in it. You do not sell, but you do take on a larger loan that you pay interest on.
Will I pay lenders mortgage insurance to access equity?
Often you can avoid it by staying within 80 percent of your property value. If releasing equity pushes your loan above that level, lenders mortgage insurance may apply, which can add a meaningful cost.
Do I have to tell the lender what the money is for?
Usually yes. Lenders generally ask the purpose of the funds, and some purposes are easier to approve than others. Being clear about a sound use, such as renovating or investing, helps your application.
Does releasing equity increase my repayments?
It can. You are borrowing more, so unless you change the term or structure, your repayments usually rise to cover the larger balance and the interest charged on it.
Is releasing equity a good idea?
It depends entirely on what the funds do and what they cost. Equity put toward something that builds value or income can pay off, while equity spent on everyday costs tends to cost more in long run interest than it is worth.
General information only. This page provides general information about home loans and is not financial or credit advice, a quote, or a guarantee, and your personal circumstances have not been considered. Lending policies, interest rates, fees and eligibility vary by lender and change over time. Always confirm your own situation with a licensed mortgage broker or lender before acting. Ross McFarlane (Credit Representative 526725) is an authorised Credit Representative of Australian Associated Advisers Pty Ltd t/a Keylend, Australian Credit Licence 392169.