Refinancing to Access Your Equity: What You Can Actually Use It For

Home equity is the difference between your property’s value and what you still owe.

Refinancing is one way to access part of that equity as cash. Most homeowners can borrow up to 80% of their property value without paying Lenders Mortgage Insurance, and the funds are commonly used for renovations, consolidating debt, or a deposit toward another property.

A quick summary

• Total equity is your property value minus your remaining loan balance.
• Usable equity is generally up to 80% of your property value, minus what you still owe.
• Borrowing above 80% may mean having to pay Lenders Mortgage Insurance (LMI).
• Accessing equity can increase your loan size and your repayments, and your lender will assess whether you can afford it.
• A YBR mortgage broker can work out your usable equity and your options at no cost to you.

Borrowers may have been quietly paying down their mortgage for years, watching their suburb’s prices climb, with no real idea that they are sitting on a sizeable resource. They know roughly what their place is worth. They know roughly what they owe. But the gap between those two numbers? Most people have never stopped to work it out, let alone thought about what they could do with it.

That gap is your equity. And for a lot of Australians, it has grown more than they realise.

Here is the part people get wrong. They assume accessing equity means selling the house or taking out some complicated second loan. It usually does not. One of the most common ways to reach your equity is to refinance your existing home loan. Let’s walk you through how it actually works, what you might be able to use the money for, and the trade-off you need to be honest with yourself about before you do it.

What is home equity, in plain terms?

Home equity is the portion of your property you actually own. You calculate it by taking your property’s current market value and subtracting the amount you still owe on your home loan.

Say your home is worth $800,000 and you owe $450,000. Your equity is $350,000. As you pay down your loan, that number grows. And if your property value rises over time, it grows faster, even when you have not paid an extra cent.

What is the difference between total equity and usable equity?

This is where a lot of homeowners get tripped up. Your total equity and your usable equity are not the same number.

Total equity is the full gap between your property value and your loan balance. Usable equity is the portion a lender will actually let you borrow against.

As a general guide, lenders let you borrow up to 80% of your property’s value. Usable equity is that 80% figure, minus what you still owe. The reason the bank holds back the rest is to keep a buffer between what you owe and what the property is worth.

How do you calculate your usable equity?

Numbers make this easier, so here is a simple worked example.

Imagine your home is valued at $900,000 and your remaining loan balance is $500,000.

• Total equity: $900,000 minus $500,000 equals $400,000.
• Usable equity (the 80 per cent guide): 80 per cent of $900,000 is $720,000. Subtract your $500,000 loan, and you are left with $220,000 in usable equity.

So while your total equity is $400,000, the amount you could realistically access without paying LMI is closer to $220,000.

A quick note: this is a simplified example to show how the maths works. What you can actually borrow depends on a full assessment of your income, expenses, credit history and the lender’s own policies. Your usable equity is a starting point, not a guarantee.

What can you actually use your accessed equity for?

Once you have accessed your equity, the funds are yours to put toward a range of things. Here are the three most common uses we see.

Renovating your home

Using equity to renovate is one of the most popular reasons people refinance. A new kitchen, an extension, a fresh bathroom, or finally fixing that roof. Drawing on your equity can fund the work without you needing a separate, higher-rate personal loan.

Consolidating higher-interest debts

If you are carrying credit card balances, a car loan or a personal loan, the interest rates on those are usually far higher than your home loan rate. Some homeowners use their equity to pay those debts off and roll them into their mortgage, which can lower their overall monthly outgoings. Just keep in mind that stretching a short-term debt over a 25 or 30 year loan term can mean paying more interest in the long run, even at a lower rate.

Putting toward a deposit on another property

Accessed equity can also be used as a deposit toward a next property. Mechanically, the equity in your current home becomes the cash you put down elsewhere, rather than saving a fresh deposit from scratch. Whether buying another property is the right move for you is a separate conversation, and one worth having with a professional who knows your full situation.

What are the trade-offs of borrowing against your equity?

Here is the honest part. Accessing your equity is not free money. You are borrowing against your home, which means your loan gets bigger and your repayments go up.

Your lender will also assess your serviceability, which is just a fancy word for whether you can comfortably afford the larger repayments based on your income and expenses. Even if you have plenty of equity on paper, you still need to show you can service the extra borrowing.

A common mistake is treating equity as a windfall rather than a debt. It is a debt. A useful one, often, but a debt all the same. The question is never just “how much can I access?” It is “how much can I access and still sleep at night?”

How does refinancing help you access your home equity?

Refinancing means replacing your current home loan with a new one, sometimes with a different lender or different terms. When you refinance to access equity, you are taking out a larger loan than your current balance, and the difference is paid to you as cash you can use.

For example, if you owe $500,000 and refinance to a $650,000 loan, that extra $150,000 (assuming it sits within your usable equity) becomes available to you. Refinancing is not the only way to access equity, but it is one of the most straightforward, and it can sometimes get you a sharper interest rate at the same time.

Where can you work out your own numbers?

Before you speak to anyone, it helps to know roughly where you stand. Yellow Brick Road has a free Remaining Balance Calculator that shows you what you still owe, which is the first number you need to estimate your equity. You can also browse the full set of home loan calculators to play with the figures.

Want to work out what your usable equity is?

At this point you might have a few questions. The good news? A quick chat with a local Yellow Brick Road mortgage broker can save you a lot of guesswork. They will work out your usable equity, walk you through your options, and there is no cost to you for the conversation.

Accessing the equity in your home can open the door to opportunities, whether you’re looking to renovate, invest, or consolidate debt. While refinancing is a popular choice, it’s not the only option. At the end of the day, the best approach is one that aligns with your goals and financial needs. Speak with an experienced mortgage broker today, and let’s create a clear plan to help you make the most of your equity.

Reach out to one of our experienced brokers today.