For many Australians, their home is more than just a place to live—it’s their largest financial asset. Over time, as you pay down your mortgage and your property’s value increases, you build what’s known as home equity. Understanding how home equity works—and how to use it strategically—can open up powerful financial opportunities, from funding renovations to consolidating debt or even investing in property.
In this guide, we’ll explain what home equity is, how to calculate it, and the smart ways you can put it to work.
What Is Home Loan Equity?
Home equity is the difference between your home’s current market value and the balance remaining on your mortgage. In other words, it’s how much of your property you truly own.
Example:
If your home is worth $750,000 and you still owe $500,000 on your mortgage, your equity is $250,000.
As you continue paying off your loan—or as your home value rises—your equity increases.
How to Calculate Your Home Equity
Here’s a simple formula:
Home Equity = Current Property Value – Outstanding Mortgage Balance
You can get an estimated value of your home by checking recent sales in your area or requesting a valuation from your lender. Keep in mind that home equity can go up or down depending on market conditions.
Smart Ways to Use Your Home Equity
Once you’ve built up enough equity, you can access it through options like a home equity loan, line of credit (HELOC), or loan top-up. Here’s how homeowners often use equity:
1. Renovations and Home Improvements
Want to remodel your kitchen, update the bathroom, or add a deck? Using equity to fund renovations can add value to your home and improve liveability.
2. Debt Consolidation
If you’re juggling high-interest debts (like credit cards or personal loans), using your home equity to consolidate them into one lower-interest loan can save you money and simplify your repayments.
3. Funding Education
Paying for university or vocational training—either for yourself or a family member—is another common use of equity. It can offer lower interest rates than traditional education loans.
4. Emergency Fund
Accessing equity through a redraw facility or HELOC gives you a financial cushion in case of unexpected expenses—medical bills, job loss, or urgent repairs.
5. Retirement Planning
Downsizers often use equity to fund their retirement. Some may also consider options like reverse mortgages to access equity without selling the home (though this requires careful consideration).
6. Property Investment
Want to grow your property portfolio? Equity from your current home can be used as a deposit on an investment property, helping you build long-term wealth.
7. Major One-Off Expenses
Some people use home equity to finance significant purchases like a new car, medical procedures, or once-in-a-lifetime travel. While possible, this should be done cautiously and only if it supports your broader financial goals.
Things to Consider Before Using Your Home Equity
While unlocking equity can be a smart financial strategy, it’s not without risks. Here are some important points to weigh up:
1. You’re Taking on More Debt
Any equity you access becomes part of your mortgage and must be repaid—with interest. Make sure the repayments will comfortably fit within your budget.
2. Property Value Can Fluctuate
Equity relies on your home’s market value. If property prices fall, your equity could shrink—or even go negative (owing more than your home is worth).
3. Your Home Is on the Line
Equity loans are secured by your property. If you can’t meet the repayments, your home could be at risk.
4. Interest Costs
The longer it takes to repay the borrowed equity, the more interest you’ll pay over time. Compare lenders, fees, and interest rates to find a competitive deal that suits your needs.
Final Thoughts
Your home equity is a powerful tool, but it should be used strategically. Whether you want to renovate, invest, or consolidate debt, understanding how equity works—and how it fits into your financial goals—is key.
Before drawing on your home’s value:
- Review your financial situation
- Shop around for the best loan products
- Speak with a mortgage broker or financial advisor if you need tailored guidance
With the right planning, your home equity can help you build long-term financial security and achieve your personal goals.