Home Equity Loans
Use your home equity to secure a second loan, allowing you to finance a new home or investment property with potentially lower interest rates.
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What Is A Home Equity Loan?
A home equity loan lets you borrow against the equity in your home to invest in shares or property, pay off debts, fund renovations, or cover lifestyle expenses.
Recently, house prices have surged across much of Australia, providing homeowners with an accessible and affordable source of credit. Using your home equity to grow your investment portfolio could be one of the best ways to generate passive income in Australia today.
What Can I Use My Equity For?
You can use your equity for any worthwhile purpose, such as:
Is An Equity Loan Suitable For Me?
We advise taking out a home equity loan only if you are disciplined with your finances. Unfortunately, some borrowers use the funds for lifestyle expenses without a clear plan for repayment.
Generally, releasing equity is cost-effective up to an 80% LVR (80% of your property value), minus your existing loan balance. Some lenders may allow you to release up to 90% LVR, minus what you owe, but this will require a one-off LMI premium. Refinancing your current loan is also necessary when applying for an equity loan.
Frequently Asked Questions
Are Interest Rates & Fees For Equity Loans Different To A Standard Home Loan?
You don’t have to pay a higher interest rate for a home equity loan. The secret to getting a competitive rate is to shop around. The banks tend to overcharge for Line of Credit loans and are also strict about their approval criteria.
Is A Line Of Credit The Best Option For My Equity Loan?
In addition, a 100% offset home loan makes it easier for you to manage your money. You can keep your available funds either in redraw, in the home loan, or in the offset account, which allows you to separate your day-to-day spending from your available equity.
Why Don’t Banks Usually Approve Cash Out For Equity Loans?
The major banks are cautious when approving equity loans, in particular when they have little evidence of what you are doing with the money. This is because there are a small number of individuals who do not use their equity responsibly or do not use the funds for the purpose they tell the bank.
While lenders do not have strict policies for equity loans without cash-out, for cash-out equity loans, the majority of lenders have a cash-out policy that restricts the amount of money that you can release to as little as $10,000-$50,000. Not every lender has cash-out restrictions.
You can learn more about taking a regular home equity loan vs a cash-out loan at our page on the topic, home equity vs cash out.
Three Tips For Your Equity Loan
Beware of Line of Credit loans: Because you can access your equity via any ATM, it can become increasingly difficult to spend responsibly. If you feel that this may cause you future financial problems, then consider a 100% offset home loan instead.
You should only consolidate debt once: If you need to consolidate debt more than once in your life then the problem may be your spending habits. Once you have completed a debt consolidation loan then do not apply for any more credit cards or personal loans.
If you do, you can end up in a cycle of spending and consolidating which will only result in you losing your equity. In extreme cases people continue to borrow to fund their lifestyle right up until they reach retirement age, yet are unable to retire as they still have a mortgage.
You can’t release equity that you don’t have: We often receive calls from people who have just purchased a home and want to release equity. If you only purchased your home in the last year or two then it is unlikely that you have any equity to release. You can calculate how much equity you have on our home equity page.
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Is an equity loan suitable for me?
We only recommend that people take out a home equity loan if they are disciplined in the use of their money. Unfortunately, some people who apply for home equity loans end up spending the money on lifestyle expenses and have no plan of how to pay the money back.
As a general rule, it is very cheap to release equity up to 80% LVR (80% of your property value). There are some lenders that will allow you to release up to 90% LVR, however you will need to pay a once off LMI premium. You must refinance your existing loan as part of the equity loan application.
Low-Doc Equity Loan
Releasing your equity with a low-doc loan is particularly difficult as lenders do not have evidence of your income or what you are doing with the loan funds.
You can release equity with a low-doc loan for up to 60% of your property value. Releasing up to 80% is possible with a few select specialist lenders at a higher interest rate.
Low-Doc Options
Most lenders these days will not require you to submit tax returns or financials if you sign a declaration confirming your income.
The lender can then assess your loan using the declared income.
Although most lenders do not charge a higher rate for low doc loans they may charge you Lenders Mortgage Insurance (LMI) as a one off fee when the loan is set up.
This fee is usually charged for loans over 60% of the property value.
Consolidating Debt With Equity Release
One of the most common reasons that people release their home equity is to roll all of their expensive unsecured debts into one low monthly repayment.
The interest rate on credit cards ranges from 10%-30%, and for personal loans the rate can be anywhere from 9%-15%.
By consolidating these debts into your home loan you can significantly reduce the ongoing repayments and save a small fortune in interest.
If you wish to consolidate your debts with a major lender you must have made all of your repayments on time in the last month for your unsecured debts and on time for the last six months for your current home loan.
Proving The Purpose Of Your Loan
One of the most common reasons that people release their home equity is to roll all of their expensive unsecured debts into one low monthly repayment.
The interest rate on credit cards ranges from 10%-30%, and for personal loans the rate can be anywhere from 9%-15%.
By consolidating these debts into your home loan you can significantly reduce the ongoing repayments and save a small fortune in interest.
If you wish to consolidate your debts with a major lender you must have made all of your repayments on time in the last month for your unsecured debts and on time for the last six months for your current home loan.
Apply For A Home Equity Loan
We can work out which lender on our panel will approve cash out for your situation and then help you to find the right home equity loan for your situation.
Related Topics
Calculate Borrowing Power Using Equity
Estimate how much you can borrow by using the equity in your property, which is the difference between your home’s value and what you owe on the mortgage.
Assess Loan-to-Value Ratio (LVR)
See how your LVR changes when you access home equity, helping you understand the impact on your loan amount and any potential risks.
Understand Interest Rate Impact
Compare how different loan amounts affect your interest rate, giving you insight into how much interest you may pay based on your home equity loan.
Plan for Repayments
Calculate potential monthly repayments for a home equity loan, helping you understand the affordability of borrowing against your home’s value.
Explore Uses for Home Equity
Learn how to use your home equity for various purposes like debt consolidation, home renovations, or investment opportunities.
Estimate Home Equity Loan Costs
Determine additional costs involved in a home equity loan, such as fees, insurance, and LMI (if applicable), so you can plan your finances more effectively.
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