Use our Home Loan Equity Calculator to estimate how much equity you’ve built in your property, how much equity may be available to borrow and your current Loan-to-Value Ratio (LVR). Whether you’re planning to renovate, invest, refinance or purchase another property, our calculator will give you a quick estimate of your borrowing potential.
What is Home Equity?
Home equity is the difference between your property’s current market value and the amount you still owe on your home loan.
So, Home Equity = Current Property Value – Outstanding Home Loan Balance
For example, if your current property value is $850,000 and your remaining mortgage is $500,000, your total equity will be $350,000.
This means you own $350,000 of your property. However, this doesn’t necessarily mean you can borrow the full amount. Lenders generally only allow you to access a portion of your equity known as usable equity.
Usable Equity Explained
Usable equity is the portion of your total equity that a lender may allow you to borrow. Most Australian lenders allow borrowing up to 80% of your property’s value without requiring Lenders Mortgage Insurance (LMI), although lending policies vary between institutions.
For example,
Property Value: $850,000
80% Lending Limit: $680,000
Current Mortgage: $500,000
Usable Equity = $680,000 – $500,000 = $180,000
Although your total equity is $350,000, the estimated amount available to borrow is approximately $180,000.
What is a Home Equity Loan?
A home equity loan allows you to borrow money using the equity you’ve built in your property as security. Rather than selling your home, you can use some of its value to access funds for major expenses.
Many homeowners use a home equity loan to either buy investment properties, fund home renovations, consolidate higher-interest debts, pay for education or medical expenses, purchase a vehicle and cover other significant personal or investment costs.
Because the loan is secured against your property, interest rates are often lower than those of unsecured personal loans or credit cards.
How to Use the Home Loan Equity Calculator?
Using the calculator is simple. First, enter all your property details, including your estimated current property value and your remaining mortgage balance. Next, you’ve got to provide your usable equity info and enter your lender’s maximum lending threshold. Most lenders use 80%, although some may allow higher or lower borrowing limits depending on your circumstances.
If you’re planning to use your equity for additional borrowing, such as renovations, purchasing another property or debt consolidation, you can enter the amount you’d like to borrow too.
After all the details are provided, the calculator will estimate your total home equity, along with your usable equity, your loan-to-value ratio (LVR), estimated remaining borrowing capacity, and whether your LVR may exceed the typical 80% threshold, where LMI could apply.
How Can You Use Your Home Equity?
Many homeowners use their equity to achieve larger financial goals. Common uses include:
- Purchasing another property
- Renovating or extending a home
- Debt consolidation
- Investing in shares or managed funds
- Paying for education or medical expenses
- Funding major purchases
- Building an emergency financial buffer
Remember that because you’re borrowing against your home, its important to consider whether the purpose justifies increasing your mortgage.
Things to Consider Before Borrowing Against Your Equity
Accessing your home equity can be a practical way to finance major expenses, investments, or renovations. However, because your home is used as security, it’s important to understand how additional borrowing could affect your finances.
Before taking out a home equity loan or increasing your mortgage, consider the following:
- Your total home loan balance will increase
- Your regular loan repayments may be higher
- Borrowing more could increase the total interest you pay over the life of your loan.
- If you don’t increase your repayments, your loan term may be extended.
- Your property remains the security for the additional funds you borrow.
How Can You Increase Your Home Equity?
Building your home equity can improve your financial position and may increase the amount you can borrow in the future. While some factors are within your control, others depend on the property market.
Make Extra Home Loan Repayments
One of the most effective ways to grow your equity is by making extra repayments on your home loan. Paying down your loan balance faster increases the portion of your property that you own and can reduce the amount of interest you pay over time.
If you have a fixed-rate home loan, check your lender’s terms before making additional repayments, as exceeding the allowable limit may result in break costs or other fees.
Increase Your Property’s Value
Improving your home can increase its market value and, in turn, your equity. Renovations and upgrades that add value may include kitchen or bathroom renovation, home extensions, landscaping, energy-efficient improvements and general repairs and cosmetic updates.
Before undertaking major renovations, consider whether the expected increase in property value is likely to outweigh the cost of the improvements.
Benefit From Property Market Growth
Your equity may also increase if your property’s market value rises over time. Factors such as local demand, infrastructure projects and broader property market conditions can all contribute to capital growth.
While market movements can’t be controlled, buying and holding property in areas with strong long-term growth potential may help build equity over time.
What is an Ideal Home Equity Loan?
Choosing the ideal home equity loan involves much more than comparing interest rates. Understanding the loan’s features, costs, and lending requirements can help you find an option that suits your financial goals and budget.
Interest Rate
The interest rate is one of the biggest factors affecting the total cost of your loan. Even a small difference in rates can significantly change how much interest you pay over the life of the loan. Compare offers from multiple lenders and consider whether a fixed or variable interest rate best suits your needs.
Loan Term
The length of your loan affects both your monthly repayments and the total interest paid. Shorter loan terms usually have higher monthly repayments but lower overall interest costs, and longer loan terms generally reduce monthly repayments but increase the total interest paid over the life of the loan.
Choose a loan term that balances affordable repayments with your long-term financial objectives.
Loan-to-Value Ratio (LVR)
The loan-to-value ratio (LVR) is the percentage of your property’s value that you borrow. Each lender sets its own maximum LVR based on its lending policies.
A higher LVR may allow you to borrow more, but it can also result in stricter lending criteria, higher interest rates, or the requirement to pay Lenders Mortgage Insurance (LMI). Many lenders require LMI when borrowing exceeds 80% of the property’s value.
Your Financial Situation
Although the amount of equity in your property plays a major role, lenders also assess your financial circumstances before approving a home equity loan. This may include your income, employment status, existing debts, living expenses, credit history and overall borrowing capacity.
Having strong equity and healthy finances may improve your chances of accessing more competitive rates and loan features.
Loan Features and Flexibility
Some home equity loans include features that can help you manage your loan more effectively, such as the ability to make extra repayments, a redraw facility to access additional repayments if needed, offset accounts and flexible repayment options.
These features can help reduce interest costs and provide greater flexibility, although some may come with eligibility requirements or additional fees.
Fees and Charges
Before committing to a loan, review all associated costs, including application or establishment fees, property valuation fees, ongoing account or annual fees, exit fees, and early repayment or break fees.
Comparing the total cost of the loan, not just the interest rate, can help you choose the most cost-effective option.
