Plenty of Australian homeowners are sitting on a lot of equity they can’t touch. The home has grown in value, the loan has come down, and on paper the numbers look strong. But when it comes to using that equity for a renovation, a deposit on the next property or something else, the picture gets more complicated.
Here’s how home equity release actually works, how to estimate what you could access, and what to weigh up before you borrow against your home.
What is home equity release?
Home equity is the difference between what your home is worth and what you still owe on it. Releasing equity means borrowing against that difference, so you can use the funds for something else while your home stays as security for the loan.
In practice, that usually happens in one of a few ways:
- Topping up your existing loan. Your lender increases your loan limit, and you draw the extra funds.
- Refinancing to a larger loan. You move to a new lender, or a new loan with your current one, at a higher amount than you owe today.
- Setting up a separate loan split. The extra borrowing sits in its own account, apart from your existing home loan.
The best structure depends on what the money is for, which comes up again further down.
Equity release for older Australians, such as reverse mortgages, works differently and isn’t covered here.
How much equity can you actually use?
Having equity and being able to use it are two different things. Most Australian lenders will lend up to 80 per cent of a property’s value without charging lenders mortgage insurance. Your usable equity is the gap between that 80 per cent ceiling and what you owe.
The formula is simple: usable equity = (property value × 80%) − current loan balance.
Here’s a worked example:
| Property value | $1,000,000 |
| 80% of the value | $800,000 |
| Current loan balance | $500,000 |
| Estimated usable equity | $300,000 |
So even though this homeowner has $500,000 of total equity, the amount a lender will typically let them borrow against is around $300,000. The lender also uses its own valuation, which can differ from what you think the property is worth.
Treat that number as a starting point, not an approval. It’s an estimate before the lender assesses anything else.
Equity isn’t the same as borrowing capacity
This is the part that catches people out. Even with plenty of usable equity, you still have to show you can afford the repayments on the larger loan.
Lenders test that using a serviceability buffer. APRA’s guidance has lenders assess your repayments at 3 percentage points above the actual interest rate (APRA). With the RBA cash rate now at 4.60% after four rises this year, that test rate sits well above where most loans are priced today.
So the question isn’t only “how much equity do I have?” It’s “how much can I borrow and still pass the assessment?” Income, existing debts, living expenses and your other properties all count. Our home loan calculator is a quick way to get a feel for the numbers before you speak to a broker.
Check the valuation first
Property values have shifted. Cotality’s September index showed national home values down for a sixth straight month, and 5.2% below the March peak (Cotality).
If your property’s value has slipped, your usable equity has shrunk with it. A figure you worked out last year may not hold today, because every dollar of value lost comes off the 80 per cent ceiling by 80 cents. It’s worth getting a current estimate before you plan around a number.
What people use released equity for
Common uses include:
- Renovations, where added value can sometimes offset the added debt.
- A deposit on the next property, including an investment purchase, without selling the home first. Our case study on restructuring a three-property portfolio to unlock $900,000 shows how this can work in practice.
- Investing, including strategies like debt recycling, where equity is borrowed to invest and the earnings help pay down the home loan.
- Consolidating other debts, which can lower the monthly repayment but can also stretch a short debt over a much longer loan term.
- Funding a business or helping family, which need careful structuring.
The purpose matters for two reasons: it affects how the loan should be set up, and it affects the tax treatment of the interest.
Why purpose matters for tax
The ATO’s position, set out in Taxation Ruling TR 2000/2, is that the deductibility of loan interest depends on what the borrowed funds are used for, not on what the loan is secured against (ATO, TR 2000/2).
In plain terms, equity borrowed against your own home to buy an investment property is treated by its use, not its security. Mixing private and investment borrowing in the same loan account can make the interest harder to separate and claim, which is why the extra borrowing is often set up as its own loan split. This is general information only, so speak with your accountant about your own situation.
The costs and risks to weigh up
Releasing equity isn’t free money. Before you go ahead, consider:
- Higher repayments. A bigger loan means bigger repayments, and variable rates can move. The RBA has raised the cash rate four times in 2026.
- More interest over time. Borrowing more and stretching it over a long term can cost far more in total interest than the headline repayment suggests.
- Your home is the security. If you can’t keep up the repayments, the lender can enforce against the property.
- Switching costs. If you refinance to release equity, check for application fees, valuation fees and any break costs on a fixed loan. Our guide to what a comparison rate is explains how to compare the fee side of different loans.
- A smaller buffer. Using more of your equity leaves less cushion if values fall.
A simple way to approach it
- Start with the purpose. Know what the money is for and how much you need.
- Estimate your usable equity. Use the 80 per cent formula, then get a current valuation.
- Check you’d pass the assessment. Remember the test rate sits 3 points above the loan rate.
- Decide on the structure. A top-up, a refinance or a separate loan split can suit different goals.
- Compare lenders. Rates, fees and policies differ, including how lenders treat your income and your other properties.
Talk to us before you borrow
Working out how much equity you can access, and whether the structure suits your goals, is exactly what a broker does. The hfinance team compares across 50+ lenders and can show you what’s realistic for your situation, including how to keep the structure clean for tax and flexibility. You can read more on our home equity release page, or see what refinancing could do on our refinancing page.
This article is general information only and does not take into account your personal financial situation or objectives. Examples are illustrative, and your usable equity will depend on the lender’s valuation and assessment. Tax information is general only, so speak with a qualified tax adviser. Speak with an hfinance broker before making any lending decisions.