What is Equity in Property?
Definition
Equity in Property
Equity is the difference between your property's current market value and the amount you still owe on your mortgage. If your home is worth $800,000 and your loan balance is $500,000, you have $300,000 in equity. Equity grows as you pay down your mortgage and as your property increases in value.
Equity is one of the most important concepts in property ownership. It represents your actual financial stake in the property — the portion you truly own versus what the bank owns. Building equity is how most Australians accumulate wealth through property, and accessing that equity can fund renovations, investments, or other major purchases without selling the home.
Total Equity vs Usable Equity
Not all of your equity is accessible. Lenders distinguish between total equity and usable equity.
Total Equity vs Usable Equity
| Criteria | Total Equity | Usable Equity |
|---|---|---|
| Definition | Market value minus loan balance | Amount you can actually borrow against |
| Calculation | $800K value − $500K loan = $300K | 80% of value − loan = $140K |
| LVR consideration | Does not account for LVR limits | Keeps LVR at 80% to avoid LMI |
| Practical use | Measures your net position | Determines how much you can access |
Most lenders will only allow you to borrow up to 80% of your property's value (across all loans secured against it) without requiring Lenders Mortgage Insurance. Using the example above: 80% of $800,000 is $640,000, minus the $500,000 you still owe, giving you $140,000 in usable equity. Use our borrowing capacity calculator to estimate how much you could borrow based on your equity and income.
How to Access Your Equity
There are several ways to access the equity in your property:
- Refinancing (cash-out refinance): Replace your existing loan with a larger one and take the difference as cash. This is the most common method for accessing a lump sum.
- Home equity loan: Take out a separate loan secured against your property's equity. You receive the funds as a lump sum and repay with fixed repayments.
- Line of credit (HELOC): An ongoing credit facility secured against your equity. You draw funds as needed and only pay interest on the amount used. Useful for ongoing expenses like renovations.
- Cross-collateralisation: Use your equity as security for a separate investment property loan. This avoids extracting cash but ties both properties to the same lender.
How to Build Equity Faster
- Make extra repayments: Paying above the minimum reduces your loan balance faster, directly increasing equity.
- Use an offset account: Funds in your offset account reduce the loan balance on which interest is calculated, accelerating principal repayment. See our home loan finance guide for more on loan features that build equity faster.
- Renovate strategically: Kitchen and bathroom renovations, additional bedrooms, and landscaping can increase market value by more than their cost.
- Choose shorter loan terms: A 25-year loan builds equity faster than a 30-year loan because a larger portion of each repayment goes toward principal.
- Avoid interest-only loans: Interest-only loans build zero equity through repayments — you rely entirely on market growth.
Frequently Asked Questions
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