Home Equity Calculator

Equity is usually calculated based on a bank valuation of the property, subtracting what you currently owe on your home loan (it’s worth knowing that a bank valuation uses different benchmarks and can be lower than a real estate valuation). So, for example, if the market price of your property is $850,000, and your outstanding loan balance is $500,000, you have up to $350,000 of equity. You can also roughly work out your equity using this calculator.
 

This is also known as usable equity, as it is the amount you can potentially access.

It’s important to understand that your total equity isn’t necessarily all available for you to use. A lender calculates usable equity as 80% of the value of the property minus the loan balance.
 

For example, say your home is valued at $800,000 and you have a home loan of $440,000. Your lender will calculate 80% of the value of the property – 80% of $800,000 is $640,000. This means your usable equity would be calculated as $640,000 (80% property value) minus $440,000 (loan size) = $200,000. You may be able to use this amount in the form of a home loan increase or line of credit secured against your usable equity.
 

Another factor that lenders usually take into account is the borrower's ability to service the loan. Even if you technically have a certain amount of usable equity, if your income, expenses and total liabilities don’t allow you to comfortably repay the full loan amount, then you may be able to only unlock the amount that you can afford, rather than the full amount of equity.

One common use of equity is towards a deposit for a new property.
 

Homeowners often also use equity to: 

• Renovate their current home.
• Invest in shares, bonds, mutual funds or similar financial instruments.
• Pay off other debts like loans or credit card bills.
• Cover major expenses, such as medical bills, education or a new car.
• Fund lifestyle expenses such as a holiday.

Keep in mind that your bank may have limits and conditions in place for how you use your equity, depending on the purpose. Also note that using equity to pay off other debts could mean you have a longer loan term than if you were to focus on paying down those debt accounts individually. Adding these balances to your home loan may result in you paying more interest on the debts over the life of the loan.
 

One of the main benefits of using equity for big expenses is that you are still charged home loan interest rates for the debt, which may be lower than other loans. The flipside is that using your equity for purchases or short-term projects may increase the term of the loan, which means you may pay more interest over the loan’s life than if you were to use a personal loan with a fixed term.
 

Most lenders require you to provide proof of your financial situation to correctly understand your borrowing power and also how you’re planning to spend the money when unlocking home equity, to ensure that it is being used responsibly.
 

Learn more about how to unlock equity here. 

There are some smart ways in which equity can be bumped up. The most obvious one is paying down your mortgage with additional repayments, which reduces the amount you owe on your loan while increasing the portion of the property that you actually own. If you have a fixed rate loan, keep in mind that there’s a limit on the total amount of additional repayments you can make before break costs apply.¹
 

You can also boost equity by increasing the value of your home proactively – this can be through renovations, extensions or cosmetic improvements. And yes, you can use existing equity to further increase equity, making it a virtuous cycle of sorts.
 

If the market works in your favour, you may find that you also build equity through asset appreciation – or in other words, an increase in the market value of your property. That is of course not something in your direct control, although it’s a good idea to think strategically about where prices are most likely to go up when researching and buying property in the first place. 

When you refinance your home loan to access equity, you are basically increasing your debt which could lead to increased repayments or a longer loan term – or both. This means you might end up paying more interest in the long run.
 

You should also think about where the money is going, whether it’s an investment that will pay for itself over time, or a purchase that may see depreciation over time. It’s important to weigh up the pros and cons of different scenarios before making a decision.
 

It’s also best to think beyond the short term, as you also need to be able to sustain the monthly repayments if interest rates go up in the future. And there are fees and costs attached to home equity loans, which you’ll need to factor in too.
 

Have any other questions? Explore our home loan products or request a call back talk to your local Home Finance Manager.