Unlocking the Hidden Wealth in Your Home: A Guide to Home Equity Loans in Australia

Have you ever looked around at your home and wondered what if? What if you could turn that space into a home gym? What if you could finally upgrade your kitchen or add that extension you’ve always dreamed of? Or what if you were able to buy a second property and start generating passive income? The possibilities can feel endless.

But the reality is that with median house prices in Australia now exceeding $1 million and construction costs skyrocketing, it can be tough to achieve your financial goals without some help.

Here’s the thing though. Your property is more than just a place to call home. It’s a source of hidden wealth waiting to be unlocked. But how can you access this wealth? Well, it’s called a home equity loan, and it’s a powerful financial tool that’s gaining popularity amongst a lot of Australian homeowners. And there’s a reason why.

What is Home Equity?

Over time, as you make mortgage repayments and your property value increases, you build up equity in your home. Equity is the difference between your property’s current value and the outstanding balance on your mortgage. For example, if your home is worth $1.5 million dollars and you owe $800,000 on your mortgage, you have $700,000 in equity.

How Do You Release That Equity?

You can release it via a top-up with your current lender or by refinancing it to another lender. Both options allow you to borrow against the equity in your property. However, not all your equity is available to be released. Only a portion of it is considered usable equity. For most lenders, this is up to 80%.

But like most things, this varies from lender to lender and there are a few factors that they’ll consider before confirming how much equity they’ll release. This includes the market value of your property based on an official valuation, your borrowing capacity, the purpose of the equity release, and any changes in your financial situation like new employment status or new assets and liabilities.

An Example

Let’s meet Sarah. Sarah is a client of ours who owns a property in Sydney. She’s been dreaming of renovating her home for years. After researching her options and chatting with a broker, she discovered that she could access the equity in her home to fund her renovation project. With a current home value of $1.5 million and a remaining mortgage of $800,000, Sarah had $70,000 in available equity.

We approached her existing lender on her behalf, and they offered her a top-up loan to access her equity. The lender explained that she could borrow up to 80% of her property’s value, which in Sarah’s case was $1.2 million. This means that she could potentially access up to $400,000 in equity.

We submitted the top-up application for her, and she was approved for the loan within a few days. The funds were then deposited into her account as a lump sum, and she was able to start her renovation project the following week.

Things to Consider

Of course, it’s important to consider your own financial circumstances before refinancing or applying to release equity in your property.

For example, the interest rate on your equity loan repayments is usually higher than a regular mortgage, so you’ll need to review the interest rates carefully and check out multiple options before choosing a loan product.

There are also a few fees involved with the application, including valuation and ongoing services, so you’ll need to be sure you can afford all of this.

But other than that, with the right approach, a home equity loan can help you unlock the wealth in your property and achieve your financial dreams.