How Much Can You Borrow Using Home Equity?
How Much Can You Borrow Using Home Equity?
If you've owned your home for a few years, you may have built up a significant amount of equity.
But how much of that equity can you actually use?
This is a common question from homeowners who are considering:
Buying an investment property
Renovating their home
Purchasing another property
Refinancing
Consolidating debts
Funding another major expense
The good news is that you may be able to access some of your home equity through additional borrowing.
However, you generally can't simply borrow 100% of the equity you have in your property.
The amount you can access will depend on your property's current value, your existing mortgage, the lender's maximum loan-to-value ratio (LVR) and, importantly, whether you can afford the additional repayments.
Let's look at how it works.
What Is Home Equity?
Home equity is the difference between your property's current value and the amount you owe on your mortgage.
The basic calculation is:
Property value − Mortgage balance = Total equity
For example:
Property value: $900,000Mortgage balance: $550,000
Your total equity would be:
$900,000 − $550,000 = $350,000
It sounds simple, but there's an important distinction between total equity and usable equity.
What Is Usable Equity?
Usable equity is the portion of your equity that you may potentially be able to access through additional borrowing while keeping the overall loan within an acceptable LVR.
For many standard residential loans, 80% LVR is an important benchmark because borrowing above this level may result in Lenders Mortgage Insurance or other lending considerations.
A simplified usable equity calculation is:
Property value × 80% − existing mortgage = potential usable equity
For example:
Property value: $900,00080% of property value: $720,000Existing mortgage: $550,000
Potential usable equity:
$720,000 − $550,000 = $170,000
So while you have $350,000 of total equity, your potential usable equity at an 80% LVR would be approximately $170,000.
This is why the amount of equity you own and the amount you can access aren't necessarily the same thing.
Why Can't I Borrow All of My Equity?
You might look at the example above and wonder:
"If I have $350,000 of equity, why can't I borrow the full $350,000?"
The reason is that the lender needs to consider the amount of debt secured against the property compared with its value.
If you borrowed the entire $350,000 of equity, your total mortgage would become approximately:
$550,000 + $350,000 = $900,000
That would mean borrowing 100% of the property's value.
This would leave no equity buffer and represents significantly more risk to the lender.
Instead, lenders generally set maximum LVR limits based on the property, loan purpose and borrower circumstances.
Does the 80% Rule Always Apply?
No.
The 80% figure is a useful general guide, but it isn't a universal rule.
Some lenders may allow borrowing above 80% LVR in certain circumstances.
However, higher LVR lending can come with additional costs or requirements, including potentially Lenders Mortgage Insurance.
The amount you can actually borrow will depend on the lender's policy and your circumstances.
For this reason, it's important not to assume that 80% is either the minimum or maximum available in every situation.
Your Borrowing Capacity Still Matters
This is one of the most important parts of accessing equity.
Having usable equity doesn't automatically mean you can borrow it.
The lender still needs to determine whether you can afford the additional debt.
For example, you might have:
$200,000 of potential usable equity
but your income and existing financial commitments may only support an additional $100,000 of borrowing.
In that situation, your borrowing capacity — rather than your equity — may be the limiting factor.
This is why an equity assessment and borrowing capacity assessment should generally be considered together.
How Do Lenders Assess Your Borrowing Capacity?
When you apply for additional lending, the lender may consider:
Your income
Your employment
Your living expenses
Existing home loans
Car loans
Personal loans
Credit card limits
Buy Now, Pay Later accounts
HECS-HELP repayments
Rental income
Number of dependants
Other financial commitments
The proposed new loan
Interest rates and lender servicing requirements
The lender needs to be satisfied that you can afford the additional repayments.
How Can Property Growth Increase Your Usable Equity?
Your equity can increase in two main ways:
You pay down your mortgage
Your property increases in value
For example, imagine you purchased your home for $700,000.
Your mortgage was $560,000.
Over several years, you've reduced the mortgage to $500,000.
If your property is now worth $850,000:
$850,000 − $500,000 = $350,000 total equity
At an 80% LVR:
$850,000 × 80% = $680,000
Potential usable equity:
$680,000 − $500,000 = $180,000
The increase in your property's value has therefore created additional borrowing capacity against the property, subject to lender assessment.
How Does a Property Valuation Affect Your Equity?
When you apply to access equity, the lender will generally need to determine what your property is currently worth.
This is important because your usable equity is calculated using the lender's accepted valuation.
For example, you may believe your property is worth $900,000.
But if the lender's valuation comes back at $850,000, the amount of usable equity could be lower.
Example
If the property is valued at $900,000:
80% = $720,000
If your mortgage is $550,000:
Potential usable equity = $170,000
But if the valuation comes back at $850,000:
80% = $680,000
$680,000 − $550,000 = $130,000
That's a $40,000 difference in potential usable equity simply because of the valuation.
Can You Use Equity to Buy an Investment Property?
Yes, this is one of the most common reasons homeowners access equity.
For example, you may use equity in your existing home to help fund:
The deposit
Stamp duty
Legal costs
Other purchasing expenses
You may then take out a separate investment loan secured against the new property.
The structure might look something like:
Existing home:Existing mortgage + equity release
Investment property:Separate investment loan
Keeping the borrowing for different purposes appropriately separated can be important from both a loan-structure and record-keeping perspective.
If you're considering investing, it's also worth discussing the tax implications with your accountant.
Can I Use Equity for a House Deposit?
Potentially, yes.
You don't necessarily need to have your entire property deposit sitting in a savings account.
If you have sufficient usable equity in your existing home, you may be able to access some of it and use those funds towards the deposit and purchasing costs of another property.
However, remember that the equity is borrowed money.
You're effectively using your existing property to help fund the purchase.
The lender will still need to assess whether you can afford both loans.
Can I Use Equity for Renovations?
Yes, potentially.
Accessing equity can be one way of funding a renovation without having to save the entire amount in cash.
You may be able to increase your existing home loan or establish a separate loan split for the renovation.
For example:
Existing mortgage: $450,000Renovation borrowing: $100,000Total lending: $550,000
The lender would assess the total lending against your property's value and your ability to service the increased debt.
For larger renovations, the lender may also have specific requirements around building contracts, plans, quotes or progress payments.
Can I Use Equity to Pay Off Other Debts?
Potentially.
Some homeowners use their equity to consolidate higher-interest debts such as:
Credit cards
Personal loans
Other eligible debts
This can sometimes reduce the interest rate and simplify repayments.
However, there's an important consideration.
A credit card or personal loan may have been intended to be repaid over a relatively short period.
If you roll that debt into a 30-year mortgage and make only the minimum mortgage repayment, you could end up paying interest on the debt for much longer.
Debt consolidation should therefore be structured carefully.
What If I Want to Access More Than 80% of My Property Value?
It may be possible in some circumstances.
Some lenders offer lending above 80% LVR, depending on:
The purpose of the loan
Property type
Borrower circumstances
Income
Overall application strength
Lender policy
However, borrowing above 80% can potentially result in Lenders Mortgage Insurance or other additional costs.
The key question isn't simply:
"How much equity can I access?"
It's:
"How much can I access while keeping the overall loan structure suitable and affordable?"
Does Refinancing Affect How Much Equity You Can Access?
It can.
If you refinance to a new lender, the new lender will generally assess:
The current value of your property
Your existing loan balance
Your income
Your expenses
Your other debts
Your requested additional borrowing
A refinance can potentially allow you to access equity that isn't currently available through your existing lender.
But refinancing isn't automatically worthwhile.
You should consider the new interest rate, fees, loan features and any costs associated with changing lenders.
What Happens If Your Property Value Falls?
Your available equity can decrease if your property value falls.
For example:
Property value: $900,000Mortgage: $550,000Equity: $350,000
If the property's value falls to $800,000:
$800,000 − $550,000 = $250,000 equity
You've lost $100,000 of equity without making any change to your mortgage.
This is why it's important not to rely on future property growth when deciding how much debt to take on.
Is Borrowing Against Your Home Equity Risky?
Accessing equity isn't necessarily a bad thing.
It can be a useful financial tool when used appropriately.
However, you are increasing the amount of debt secured against your property.
Before accessing equity, consider:
How much your repayments will increase
Whether your income is stable
Whether you have an emergency buffer
What the borrowed funds will be used for
The interest rate
The loan term
What would happen if interest rates increased
What would happen if your income decreased
It's important to remember that equity isn't income.
You're borrowing against an asset you own.
How Can I Find Out How Much Equity I Have?
The first step is to establish a realistic current value for your property.
You can then compare this with your current mortgage balance.
For example:
Estimated property value: $950,000Mortgage balance: $520,000
Total equity:
$950,000 − $520,000 = $430,000
At 80% LVR:
$950,000 × 80% = $760,000
Potential usable equity:
$760,000 − $520,000 = $240,000
From there, the lender would assess your borrowing capacity to determine how much additional lending you could potentially afford.
Common Questions About Borrowing Against Home Equity
How much equity can I borrow?
There isn't a set amount.
A common calculation is to look at the amount you could borrow up to a particular LVR, such as 80%, and subtract your existing mortgage.
However, your income and borrowing capacity will also determine how much you can actually access.
Can I borrow 100% of my home equity?
Generally, no.
Lenders have maximum LVR limits and will assess the amount of debt against the property's value.
Can I use home equity as a deposit?
Yes, potentially. Some homeowners use usable equity in their existing property to help fund the deposit and purchasing costs for another property.
Can I use equity to buy an investment property?
Yes, potentially. Accessing equity can be one strategy for funding the deposit and costs associated with purchasing an investment property.
Do I have to refinance to access equity?
Not necessarily.
Depending on your circumstances, your existing lender may allow you to increase your lending or establish an additional loan split. Refinancing to another lender may also be an option.
How long does it take to access home equity?
The timeframe varies depending on the lender, valuation requirements, documentation and complexity of the application.
Does accessing equity increase my mortgage?
Yes. Accessing equity generally involves taking on additional debt, which increases your total borrowing.
Can I access equity if I still have a large mortgage?
Potentially.
It depends on your property's value, your existing loan balance, the lender's LVR limits and your borrowing capacity.
Does home equity affect my borrowing capacity?
Equity and borrowing capacity are two different things.
You may have plenty of equity but insufficient income to support additional borrowing.
Likewise, you may have strong borrowing capacity but insufficient equity or deposit.
Both need to be considered.
Why Choose Formulate Finance Group?
If you've owned your home for a few years, you may be sitting on more equity than you realise.
At Formulate Finance Group, we can help you work out how much equity you may have, how much could potentially be accessible and whether using that equity makes sense for your goals.
Whether you're looking to:
Purchase an investment property
Renovate
Refinance
Consolidate debt
Purchase another home
Access funds for another purpose
we can help you work through the numbers and compare potential lending options.
We'll look beyond the equity figure and consider your borrowing capacity, repayments, existing commitments and overall financial position.
Final Thoughts: How Much Equity Can You Actually Use?
Building equity in your home can open up additional financial options.
But there's an important difference between having equity and being able to borrow against it.
Your potential borrowing will depend on:
Your property's value + your existing mortgage + the lender's LVR requirements + your borrowing capacity.
If you're thinking about using your equity, don't rely solely on an online calculator or an estimated property value.
A proper assessment can help you understand how much you may be able to access and, more importantly, whether the additional borrowing is affordable.
Wondering how much equity you could access?
Get in touch with Formulate Finance Group to discuss your property equity, borrowing capacity and lending options.
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