What is home equity and how can you put it to use?
Written and accurate as at: May 06, 2026 Current Stats & Facts
As you chip away at your mortgage or your property rises in value, the equity you have in your home increases. More equity means you’re closer to owning your home outright, but it can also open doors to opportunities you didn’t have before, from funding renos to purchasing another property.
If you’ve been wondering how home equity works and what you can actually do with yours, we’ve got you covered.
First of all, what is home equity?
To put it simply, home equity is the gap between what your home is worth and what you still owe on your loan. If your place is valued at $1,000,000 and you have $600,000 remaining on your loan, your equity will come in at $400,000.
Not all of that equity will be accessible. Lenders tend to cap usable equity at around 80% of your property’s value, minus what you still owe. So if we stick with the example above, 80% of $1,000,000 is $800,000. Subtract your $600,000 loan and you may be able to access up to $200,000 in equity, assuming you meet all your lender’s requirements.
How do you actually access it?
In practice, accessing your equity usually involves borrowing against it. This can be done by increasing your existing home loan, taking out a separate loan secured against your property, or setting up a line of credit.
Let’s say you’re a homeowner who wants to take out a separate loan to purchase an investment property. The one you’ve got your eye on is valued at $650,000, but you estimate costs like stamp duty, conveyancing and inspections will bring the total to $680,000.
If your lender is willing to finance up to 80% of the property’s value, you could borrow $520,000 against the new purchase. That leaves a gap of $160,000 to cover the deposit and upfront costs.
The home you live in is valued at $900,000, and you still owe $500,000 on your mortgage. That gives you $400,000 in total equity. However, only 80% of that will be accessible (unless you want to purchase lenders mortgage Insurance).
In this case, 80% of $900,000 is $720,000. When you subtract your existing loan balance of $500,000, you’re left with $220,000 in usable equity.
That $220,000 could be used to cover the $160,000 needed for your investment purchase. Of course, you still need to pass the usual checks. Your income, expenses and job stability will all come into play, and if you can’t show you can handle the repayments, the answer will probably be no regardless of how much equity you have.
Options for older Australians
There are other ways to tap into your home equity, such as a reverse mortgage or the Home Equity Access Scheme. These are typically reserved for older homeowners who own their property outright or have very little debt.
- Reverse mortgage: These generally allow you to borrow around 15-20% of your home’s value, plus an additional 1% for every year you are over age 60. Instead of making repayments, the interest is added to the loan and compounds over time. It’s only when you sell your home, move into aged care or pass away that you’ll be expected to repay the loan in full.
- Home Equity Access Scheme: This is a government-backed scheme that lets older Australians draw down an income by borrowing against the value of their property. You can choose how much to receive (subject to certain limits) and how you’ll receive it (a fortnightly payment, a lump sum payment or a combination of both). You won’t be expected to repay your loan in full until you exit the scheme, which usually happens when you sell your home or pass away.
How can you increase your equity?
A big part of it comes down to time and the market, but that’s not to say you’re powerless. Paying more than the minimum on your loan reduces your balance faster and allows you to build equity sooner.
The same goes for refinancing to a lower interest rate. This can leave you with more money in your pocket, but if you keep your repayments at the same level as before, you’ll find yourself whittling away at the principal at a much faster rate.
Because unlocking equity essentially means increasing your debt, you’ll need a solid plan in place. To make sure you don’t overextend yourself financially, consider seeking out financial advice.