If you’ve been a homeowner for more than a few years, there’s a good chance you’ve managed to build up at least a little equity in your home. Depending on how much equity you have, you might be able to use it to buy an investment property, renovate your home or even go on your dream holiday. Here’s how equity works.
What is home equity?
Home equity refers to the portion of your home that you own outright. It’s essentially the difference between the current value of your home and the outstanding balance of your mortgage.
How to calculate my home equity
Calculating your home equity is simple. All you need to do is work out what your home is currently worth and subtract your outstanding loan balance.
Let’s say your house is valued at $850,000. If your home loan is currently sitting at $300,000, you would be left with $550,000 of home equity. But just because you have $550k of equity sitting in your home doesn’t mean you can use the full amount. That’s where usable equity comes into play.
How does ‘usable’ equity work?
Most lenders allow you to borrow up to 80% of your property’s market value before charging you Lenders Mortgage Insurance (LMI). To work out your usable equity, you’ll need to first work out what 80% of your property’s current value is.
Based on the figures above, 80% of $850,000 is $680,000. When you subtract your outstanding loan balance of $300,000, you’re left with $380,000 of usable equity.
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How to build equity in your home
When it comes to building equity in your home, there are two main ways to go about it: paying off your home loan or increasing the value of your property.
Paying off your mortgage
Homeowners’ equity typically increases as you chip away at the principal amount of your loan when you make your mortgage repayments (so long as your repayments include both interest and the principal).
If you’re keen to pay off your mortgage sooner and grow your equity, you might want to consider making extra loan repayments or even increasing the frequency of your repayments.
Increasing your home’s value
Your equity can also increase as the value of your home appreciates. Increases in the property market can add value to your property and boost your home equity.
Alternatively, you add value to your home through renovations and home improvements to make your property more attractive to potential buyers.
How to access your home equity
Increasing your home equity is a great way to grow your wealth, but it can also come in handy when working towards other financial goals. Whether you’re keen to buy an investment property, purchase a new car, fund renovations or go on holiday, you might be able to tap into your home equity to make it happen.
Here are some of the ways you can access your home equity:
Home equity loans
A home equity loan, also known as a second mortgage, allows you to borrow a lump sum based on the equity you have in your home.
Most home equity loans come with a fixed interest rate. And because these loans are technically a second mortgage, you’ll need to make these repayments in addition to your original home loan.
If you’re after a more thorough explanation of home equity loans, reach out to an Aussie Broker for a free^ call and they’ll step you through the process.
Homeowner line of credit
A home equity line of credit is similar to a second mortgage in that it also requires additional repayments on top of your original home loan. The key difference is that instead of receiving all the funds upfront in a lump sum, you can borrow what you need as you need it up to an agreed limit.
Another difference that sets a line of credit apart from a home equity loan is that a line of credit often comes with a variable interest rate.
Shared equity: an alternative approach
As property prices continue to rise, home ownership is becoming less affordable for many first-time home buyers. With this in mind, so-called “shared ownership schemes” are quickly gaining popularity among young and first-time home buyers, helping them enter the property market sooner.
What is shared equity?
A shared home equity scheme is a homeownership model where the buyer shares the cost of purchasing a property with an equity partner. With a shared equity property, the equity partner essentially acts as both the lender and the investor.
Government entities often provide shared equity schemes, but they can also be offered by shared equity lenders and other private investors.
What shared equity home buyer schemes are available in Australia?
The Help to Buy scheme is the Federal government’s shared equity scheme. First announced in 2022, the program is expected to launch nationally in 2025. This shared equity program is designed to help up to 40,000 Australian households purchase a home over four years, with a yearly cap of 10,000 participants.
Under this scheme, the government will contribute up to 40% of the price for new homes and 30% for existing ones, significantly reducing upfront costs and ongoing mortgage repayments. That means that eligible buyers will only need a minimum 2% deposit to be able to buy a home.
Besides the federal government’s shared equity scheme, there are currently a number of other shared equity home buyer help programs on offer from state and territory governments around the country, including:
New South Wales’ Shared Equity Home Buyer Helper (applications closed on 30 June 2024),
Queensland’s Pathways Shared Equity Loan,
South Australia’s Homestart Shared Equity Option,
Western Australia’s Shared Home Ownership initiative,
Tasmania’s MyHome shared equity program, and
The ACT Shared Equity Scheme.
The Northern Territory government doesn’t currently have a shared equity scheme, but they do offer several HomeGrown Territory Grants to help homeowners with the cost of buying or building a home.
While these shared equity schemes provide several key benefits to potential homeowners, they do come with their own set of drawbacks, including:
Reduced ownership and limited potential capital gains,
Potential restrictions on modifications,
Limited flexibility when it comes to selling or refinancing,
Reduced control, and
Ongoing obligations regarding repayments and shared expenses.
With this in mind, it’s essential to consider all the facts to ensure a shared equity scheme is right for you.
Does it cost money to access equity?
Accessing your home equity usually comes with some costs, which vary depending on your lender, loan type and how you choose to access the funds. If you're refinancing to release equity, you may need to cover property valuation, application, settlement and discharge fees.
Some lenders also charge legal or document preparation fees, and if you opt for a line of credit or equity loan, there may be ongoing account or interest costs.
While tapping into your equity isn't free, it can still be a practical way to fund renovations, property investments or other financial goals when managed carefully. Your Aussie Broker can outline which costs apply to your situation and help you compare options across different lenders.
Below is a breakdown of typical costs to access home equity in Australia.
Cost type | Who charges it | What it covers |
|---|---|---|
Application or settlement fee | Lender | Processing or setting up the new loan/top-up Discretionary: can sometimes be waived under packages/promotions |
Property valuation fee | Third-party valuer (arranged by lender) | Independent assessment of property value Discretionary: may be waived by some lenders; varies depending on property type and location; higher for rural/unusual properties |
Mortgage registration fee | State/Territory government | Registers the new mortgage on title Mandatory: varies by state/territory, not negotiable |
Mortgage discharge or exit fee | Lender | Closing out the old loan (if refinancing) Discretionary: fee amount varies by lender; may be higher in some cases |
Legal or document preparation fee | Lender or external legal provider | Loan document preparation, settlement checks Discretionary: depends if the lender passes on costs directly; sometimes bundled |
Break costs (fixed loans only) | Lender | Penalty for ending a fixed term early Mandatory if applicable: depends on loan size, term remaining and rate changes |
Stamp duty (refinancing scenarios) | State/Territory government | In limited cases, may apply if refinancing involves new security or ownership changes. Usually no stamp duty on refinancing unless borrower/ownership changes; mandatory where triggered |
Lenders Mortgage Insurance (LMI) | Lender/insurer | Can run into thousands Mandatory if LVR >80% unless waived by lender policy |
Ongoing or recurring fees: Some home loans have ongoing account-keeping fees, package fees, fees for redraw/offset, or admin fees. Over the life of the loan, these matter, too.
Your Aussie Broker can give you a full breakdown to help you factor these into your budget early on, so there are no surprises when it's time to settle.
Keen to learn more about accessing your home equity or the shared equity schemes that are available to you? Get in touch with an Aussie Broker to see what options are available to you.