Home Equity Loan: 6 Super Smart Ways to Use Your Equity

6 Smart Ways to Use Your Equity

Having equity available does not automatically mean you should borrow against it. A clear purpose and realistic repayment plan are important. If you are deciding how to use equity in your home, here are six common options worth considering.

1. Use Equity for Renovations and Home Improvements

Renovating can be one of the most practical ways to put property equity to work. Depending on the project, funds could be used for a new kitchen, bathroom upgrade, extension, additional bedroom, major repairs or other improvements.

Using a home equity loan for renovations may allow you to fund a larger project without relying on higher-interest unsecured credit. However, it is still important to compare the cost of the work against the additional repayments and the value the improvement is likely to provide.

If your main goal is to use equity for renovations, it is worth comparing equity release against other renovation finance structures rather than assuming one option will automatically be best.

2. Put Usable Equity Towards an Investment Property

Some homeowners use usable equity as part of the deposit and purchasing costs for another property. This may reduce the amount of cash you need to contribute upfront, although your ability to borrow will still depend on serviceability, lender policy and the proposed investment loan.

If you are exploring home equity for investment property purposes, the lending structure deserves particular attention. Keeping private and investment borrowing separate may make the loans easier to manage and track, particularly where tax considerations are involved.

The Australian Taxation Office explains that the deductibility of interest generally depends on the purpose and use of borrowed funds. Where borrowing is partly for private purposes, interest expenses may need to be apportioned.

Tax treatment will depend on your individual circumstances, so speak with your accountant or tax adviser before relying on any potential deduction.

For more detailed information about investment lending and loan structures, visit the dedicated PLS property investment page.

3. Use Equity When Buying Your Next Home

Equity can also form part of your strategy when you are upgrading, downsizing or moving to your next home.

For example, you may want to access home equity to contribute towards the deposit or purchasing costs on the next property. The important part is understanding how your existing property, current mortgage and proposed purchase work together.

This can become more complex if you intend to keep your current home as an investment rather than sell it. Your borrowing capacity, loan structure and timing should ideally be considered before you sign a contract on another property.

If refinancing forms part of the strategy, PLS can help compare the available refinance options and determine whether changing lenders or restructuring with your existing lender makes sense.

4. Consolidate Higher-Interest Debt

A home equity loan may also be used to consolidate credit cards, personal loans or other higher-interest debts into lending secured against your property. This can make repayments easier to manage and may reduce the interest rate being charged on the consolidated debt.

However, lower repayments do not necessarily mean a lower overall cost.

According to Moneysmart, refinancing debt over a longer loan term can increase the total amount you repay, even where the new interest rate is lower. Turning previously unsecured debts into lending secured against your property can also increase the consequences if you later struggle to meet repayments.

If debt consolidation is one of your goals, compare the total cost, loan term, fees and repayment strategy rather than looking only at the new weekly or monthly repayment.

5. Support a Business Purchase or Planned Expansion

Property equity may sometimes be considered when funding a business purchase, fitout, equipment, premises or another planned business investment.

This is an area where structure matters. Using residential property to support business borrowing may expose your home to business-related risk, so it should not be treated as the automatic choice simply because equity is available.

PLS can compare using property equity with standalone business finance, helping you understand differences in security, loan terms and repayments before deciding which approach suits your plans.

6. Fund a Major Long-Term Expense

There may be circumstances where borrowing against equity could help fund a significant planned expense, such as education costs, essential property works or another major long-term need.

The question to ask is whether the expense provides enough lasting value to justify increasing debt secured against your home.

Short-term lifestyle spending can become very expensive when it is added to a mortgage and repaid over many years. Before you borrow against home equity, compare other finance options and consider how quickly you intend to repay the additional amount.

How Much Usable Equity Could You Access?

Total equity and usable equity are not necessarily the same thing. For illustration, an 80% LVR calculation could look like this:

80% of the lender-assessed property value minus the existing loan balance = indicative usable equity

For example:

• Lender-assessed property value: $900,000
• 80% of property value: $720,000
• Current mortgage balance: $500,000
• Indicative usable equity: $220,000

In this example, the homeowner has $400,000 in total equity, but an indicative $220,000 based on an 80% LVR calculation.

This does not mean a lender will automatically approve another $220,000. The lender may use a different property valuation or LVR limit, and you will still need to demonstrate that you can service the additional borrowing.

That distinction is particularly important for BOF borrowers. Having significant equity does not necessarily mean you have the borrowing capacity to access all of it.

APRA currently requires authorised deposit-taking institutions to apply a minimum 3 percentage-point mortgage serviceability buffer when assessing residential mortgage lending. The buffer is designed to provide a contingency for potential increases in rates or changes to a borrower’s financial circumstances.

You can use these PLS calculators for an initial indication of how the numbers may look.

Try the PLS Borrowing Power Calculator

Try the PLS Home Loan Repayment Calculator

How Can You Access the Equity in Your Home?

There is no single loan structure that suits every borrower.

Depending on your lender, current mortgage and purpose for accessing the funds, options may include:

• increasing or topping up your existing mortgage
• creating a separate loan split or supplementary loan
• refinancing to another lender and releasing equity
• restructuring your existing lending so different loan purposes remain separate

The right approach can depend on the purpose of the funds, current loan features, interest rates, fees, future plans and how much flexibility you need.

For example, someone accessing funds for an investment property may want to keep that borrowing separate from their private home debt. Someone renovating may have different cash-flow needs depending on whether the project is completed in one stage or progressively.

This is one reason it can be useful to speak with a broker before asking your existing lender for a simple loan increase. There may be other structures or lenders worth comparing first.

Benefits of a Home Equity Loan

A home equity loan may offer several advantages when the borrowing has a clear purpose and comfortably fits your budget.

Potentially Lower Rates Than Some Unsecured Borrowing

Because property is being used as security, mortgage lending may carry a lower interest rate than some credit cards or unsecured personal loans.

A lower rate alone, however, does not automatically make the loan cheaper overall. The loan term and repayment strategy still matter.

Access to Larger Amounts

Homeowners with substantial usable equity and sufficient borrowing capacity may be able to access larger amounts than would otherwise be available through unsecured finance.

Flexible Uses

Depending on the lender and loan purpose, equity could potentially support renovations, another property purchase, debt consolidation, business plans or other significant expenses.

Opportunity to Restructure Debt

Accessing equity can sometimes form part of a wider lending restructure aimed at simplifying repayments or better separating different types of debt.

Potential Tax Considerations for Investment Use

Where borrowed money is used for an income-producing investment, interest may be deductible in some circumstances.

However, the ATO makes it clear that deductibility depends on the use and purpose of the borrowed funds. It is not determined simply by which property is used as security.

Always seek advice from a qualified accountant or tax professional regarding your own circumstances.

Potential Risks of Accessing Your Home Equity

Accessing equity means increasing the debt secured against your property, so the potential advantages need to be weighed against the risks.

Your Home Is Being Used as Security

This is one of the most important considerations. If you cannot keep up with repayments on lending secured against your property, the consequences can be serious.

Your Total Debt Increases

Even if the interest rate is competitive, borrowing more increases the overall amount you owe. This can reduce your future borrowing capacity and place additional pressure on your household budget.

Repayments Can Change

If your additional lending has a variable interest rate, repayments can increase when rates rise.
This is another reason to test affordability beyond today’s repayment amount rather than borrowing to the upper limit of what a lender may approve.

Property Values Can Change

Equity is partly dependent on the lender-assessed value of your property. If property values fall, the amount of equity you hold can reduce.

A Longer Loan Term Can Increase Total Interest

Adding an expense to a mortgage may make the repayment look relatively small, but spreading the debt over many years can significantly increase the total amount of interest paid.

This is especially important when consolidating debts that would otherwise have been repaid over a much shorter period.

The Purpose of the Borrowing Matters

Using equity to purchase an asset or make a carefully planned improvement is very different from adding short-lived discretionary spending to long-term mortgage debt.

Having access to funds should not replace having a clear financial reason for borrowing them.

What Should You Check Before Accessing Equity?

Before applying, work through the numbers rather than relying only on the amount of equity you appear to have on paper.

Consider asking:

• How much usable equity do I have after the lender’s valuation?
• How much do I actually need to borrow?
• What will my additional repayments be?
• Could I still afford the loan if rates or household expenses increase?
• Are there application, valuation, discharge or refinancing costs?
• Will the additional debt affect another property purchase I am planning?
• Am I likely to sell the property soon?
• Would another type of finance be more suitable?
• Should the additional borrowing be kept in a separate loan split?
• What is my plan for paying the additional debt down?
• Am I comparing the total cost of the loan rather than just the interest rate?

For someone who is already close to making a borrowing decision, these questions can be more useful than simply asking how much a lender is prepared to release.

The goal should be to find a structure that supports what you are trying to achieve without putting unnecessary pressure on your finances.

Is a Home Equity Loan Right for You?

It may be worth considering if you have built substantial equity, have a clear reason for borrowing and can comfortably manage the higher repayments.

It may be less suitable if your income is uncertain, your available equity is limited, you expect to sell your property soon or you would be taking on long-term debt to fund a short-term expense.

A mortgage broker can help you compare your available equity, borrowing capacity, likely repayments, lender requirements and alternative ways of financing the same goal.

Making the Most of the Equity You Have Built

Equity can create useful borrowing options, but the smartest use is one that supports a clear goal without putting unnecessary pressure on your household finances.

If you are thinking about a home equity loan, Professional Lending Solutions can review your current mortgage, property position and borrowing goals, then compare suitable options across our lender panel.

Whether you are renovating, investing, restructuring debt, purchasing a business or planning another major financial move, our team can help you understand the numbers and potential lending structures before you proceed.

Ready to Find Out What Your Equity Could Help You Achieve?

Speak with Professional Lending Solutions about how much usable equity you may have, what the additional repayments could look like and which lending options could suit your plans.