A lot of homeowners and investors are sitting on equity, but there is a big difference between having equity on paper and being able to use it. That is the part many people miss.
Your property may have increased in value.
You may have paid down part of your loan.
You may feel like you are in a stronger position than you were a few years ago.
But before you start planning the next purchase, renovation or investment property, it is worth asking, how much of that equity is actually usable?
What is equity?
Equity is the difference between what your property is worth and what you still owe on it.
For example, if your property is worth $1,000,000 and your loan is $600,000, you have $400,000 in equity on paper. That sounds simple enough.
But lenders generally do not let you access all of it because They want to make sure there is still enough security in the property and that you can afford the increased lending. So while you may have equity, the usable amount could be much lower.
Equity vs Usable Equity
Equity and Usable equity are not the same thing. Equity is what exists on paper, and Usable equity is what a lender may allow you to access, based on their policies, valuation, your existing loan, your income, your expenses and your overall position.
ASIC’s Moneysmart notes that borrowers with less than 20% equity may need to consider lender’s mortgage insurance when switching home loans, which is a useful reminder that equity levels can directly affect lending options and costs. In practical terms, lenders often want to keep a buffer in the property. If you are trying to access equity, they will look at the property value, the current debt, the new loan amount and whether the overall application makes sense.
What can equity be used for?
Depending on your circumstances, equity may be used for things like:
- Buying an investment property
- Upgrading your home
- Renovating
- Consolidating debt
- Helping with a deposit
- restructuring existing loans
- Funding business or investment opportunities
- Building a property portfolio
The key phrase here is depending on your circumstances. Just because equity exists, it does not mean accessing it is the right move.
The lender still needs to assess your income
This is where people often get caught because they think, “My property has gone up, so I can borrow more.” Maybe. But maybe not. A lender will still assess whether you can afford the additional debt.
That means they will look at your:
- Income
- Employment type
- Existing repayments
- Expenses
- Dependants
- Credit card limits
- Other debts
- Rental income
- Investment property costs
- Overall financial position
For investors, this matters a lot. You might have the equity to use as a deposit, but not enough borrowing capacity to service the next loan. That does not mean the strategy is impossible. It simply means the numbers need to be checked properly.
Valuation can change the result
Your idea of what your property is worth may not match the lender’s valuation. Real estate estimates, suburb sales, agent appraisals and online property values can all be useful indicators, but the lender’s valuation is what ultimately matters for the application. If the valuation comes in lower than expected, your usable equity may be reduced. This is another reason to check before making commitments.
Loan structure matters
If you are planning to use equity, the way your current loans are structured can matter.
For example:
- Do you have one large loan or multiple splits?
- Do you have offset accounts?
- Are your loans fixed or variable?
- Are you mixing personal and investment debt?
- Are you buying in your own name, a trust, a company or SMSF?
- Is your current lender still suitable for the next step?
For clients building wealth through property, the structure can affect flexibility, tax conversations, future borrowing and the ability to keep moving. Strategic Brokers will often work alongside your accountant, financial planner or solicitor where needed, especially when structures are more complex.
Using equity is not “free money”
Equity can be powerful, but it is still borrowed money. If you access equity, your loan increases. Your repayments may increase. Your risk may increase. If property values fall or your income changes, your position can become tighter. That does not mean you should avoid using equity. It means you should use it deliberately.
The best equity strategies are planned around:
- Cash flow
- Buffer
- Exit strategy
- Lending structure
- Future borrowing plans
- Tax advice
- Risk tolerance
- The quality of the asset being purchased
When is it worth checking equity position?
It is worth reviewing your equity if:
- You bought a property several years ago
- Your property may have increased in value
- You have paid down your loan
- You are thinking about investing
- You want to renovate
- You are considering refinancing
- You want to buy before selling
- You are restructuring debt
- You want to understand your options
You do not need to be ready to buy tomorrow. Sometimes the smartest move is simply getting clear on what is possible.
Let’s look at an example
Let’s say you own a home that has grown in value. You want to buy an investment property, but you are not sure whether you need to save another deposit.
A broker can help you understand:
- What your property might be valued at
- How much equity may be usable
- Whether your income supports the next loan
- What structure might make sense
- Which lenders may be suitable
- What the repayments could look like
- Whether the strategy is realistic right now
That gives you a much clearer starting point than guessing.
Before you use equity, ask yourself these questions:
- How much equity do I have on paper?
- How much might actually be usable?
- Can I afford the increased lending?
- What is the purpose of accessing the equity?
- Does this support my long-term plan?
- What risks do I need to understand?
- Should I speak with my accountant or adviser first?
- Is my current lender the right lender for this next step?
If you cannot answer those questions clearly, it is worth getting advice before moving forward.
Could your equity fund your next move?
Equity can be a smart tool when it is used properly as it can help you invest, renovate, upgrade or restructure. But it needs to be assessed carefully, especially if your income, entity structure or property plans are more complex.
At Strategic Brokers, we help clients understand not just how much equity they may have, but whether that equity can actually be used in a way that supports their next move.
Want to understand your usable equity?
Speak with the Strategic Brokers team today!
