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Home Equity Loan( Equity Release Loans)
You have worked hard to pay down your mortgage, and theproperty market has likely helped increase your home's value. That combination createsEquity-a powerful financial resource that often sits idle.
At Mortgage Counsel, we help Australian homeowners turn thatdormant equity into active capital. Whether you are looking to renovate, buy aninvestment property, or get on top of spiralling personal debt, a Home Equity Loancould be the solution.
What Is a Home Equity Loan?
In simple terms, a Home Equity Loan allows you to borrow moneyby using your existing property as security. Instead of taking out a high-interestpersonal loan or using a credit card, you "top up" your existing homeloan or create a new loan split secured against your house.
Because the loan is secured by property, the interest ratesare generally much lower than other forms of credit.
The Equity Equation
To understand what you have, you first need to define it:
Equity = Current Property Value - RemainingMortgage Balance
Example: If your home is valued at $900,000 andyou owe $500,000, your total equity is
$400,000.
However, you generally cannot access all of thismoney. Banks typically lend up to 80% of the property value to minimize risk.This is called Usable Equity.
How Much Can I Actually Borrow? (Usable Equity)
This is the most common question we get. Most lenders inAustralia have a "safe zone" of 80% Loan-to-Value Ratio (LVR). If yougo above this, you may have to pay Lenders Mortgage Insurance (LMI).
The Calculation for Usable Equity:
1. Property Value: $900,000
2. Max Lending (80%): $720,000
3. Less Existing Debt: -$500,000
4. Available Equity: $220,000
Note: While some lenders allow access up to90%, this usually incurs LMI and higher scrutiny.
What Can You Use a Home Equity Loan For?
Most lenders allow equity for a widerange of legitimate purposes, including:
1. Home renovations and improvements (especiallyvalue adding upgrades)
2. Buying an investmentproperty (deposit + costs)
3. Debt consolidation (credit cards, personal loans, car loans)
4. Education and major life expenses.
5. Business purposes (depending on lender).
6. Buying a car,boat,caravan etc.
7. Buying shares or investmeent in other asset classes.
FAQ`s
Yes. This is a common strategy, but lenders still assess serviceability, and you'll want the loan structured cleanly. Consider independen ttax advice on deductibility.
Yes, and it can reduce interest costs-but only works long-termif you don't rebuild the debt. Many lenders expect cards to be paid out (andsometimes closed).
In most cases, yes. Lenders typicallyorder a valuation to confirm the property value used for LVR calculations.
Usually no-equity release is commonly priced similarly to standardhome loan products, depending on the lender and the product type.
This is a niche area. Most major banks willnot allow you to release equity specifically to pay tax debts. However, severalspecialist non-bank lendersdo allow this, provided youhave a clear exit strategy or repaymentplan.
Yes. Because youare increasing your total loan balance, your repayments will rise. It is vital to ensure your monthly budgetcan handle the new repaymentfigure before proceeding.
