How to Release Equity When Refinancing Your Home

What Equity Release Actually Means

Releasing equity means borrowing against the value your property has gained since you bought it or paid down your loan. You refinance to a higher loan amount, and the difference between your old loan balance and your new one gets paid to you as cash.

Most lenders will let you borrow up to 80% of your property's current value without needing to pay lenders mortgage insurance. If your home is worth $600,000 and you owe $300,000, you could refinance to $480,000 and walk away with $180,000 in cash. That $180,000 is yours to use however you need, whether that's renovating, buying an investment property, consolidating debt, or funding a business.

Why Your Current Lender Won't Offer You the Real Amount

Your existing lender has no incentive to tell you how much equity you can access. They already have your business, and offering you more money means more work for them without gaining a new customer. We regularly see clients who've been told by their bank that they can only borrow an extra $30,000 when they actually qualify for $150,000 or more with a different lender.

Consider a client who approached their bank to release equity for a renovation. The bank offered $40,000 at their existing rate of 6.2%. When we ran the numbers with three other lenders, one approved $120,000 at 5.9% with lower fees. The client had assumed their bank would look after them because they'd been there for twelve years. That loyalty wasn't returned.

How Much Equity You Can Actually Use

Your usable equity depends on your property value, your current loan balance, and how much a lender will let you borrow based on your income. The loan to value ratio is the limit most people hit first. At 80% LVR, you avoid lenders mortgage insurance, which can cost thousands. Go above 80% and you'll pay that insurance, though some lenders will still approve up to 90% or even 95% in specific situations.

Your income sets the second limit. Lenders assess whether you can service the higher loan amount based on your earnings, expenses, and other debts. If your property has $200,000 in available equity but your income only supports an extra $80,000 in borrowing, that's your ceiling. A broker can tell you within a day which limit applies to you and which lender will give you the most.

Using Equity for an Investment Property

Releasing equity to buy an investment property is one of the most common reasons people refinance. The rental income from the new property helps service the additional borrowing, and you're building wealth in two properties instead of one.

In a scenario like this, someone owns a home worth $700,000 with $250,000 still owing. They want to buy an investment property for $500,000. Refinancing their home loan to $560,000 (80% LVR) gives them $310,000 in cash. They use $100,000 as a deposit on the investment property, keep $30,000 for stamp duty and purchase costs, and hold $180,000 in an offset account to manage cash flow. The investment property rents for $550 per week, covering most of the loan repayments on the new purchase. Their original home loan repayments increase, but the rental income and tax benefits make the strategy viable. They now own two properties with strong growth potential instead of sitting on dormant equity.

Debt Consolidation Through Equity Release

If you're carrying personal loans, car loans, or credit card debt at high interest rates, refinancing to consolidate that debt into your home loan can save you thousands every year. Personal loans might charge 10% to 15%, and credit cards often sit above 20%. Your home loan rate is likely under 7%, so consolidating makes financial sense if you're disciplined about not running up new debt.

Suppose someone has $35,000 across three credit cards and a car loan, all charging between 12% and 22%. Their minimum repayments total $1,400 per month, and most of that is going to interest. They owe $320,000 on a home now worth $520,000. Refinancing to $380,000 at 6.1% clears all the high-interest debt and drops their total monthly repayments to $2,100 across the single home loan. That's a saving of $700 per month, and they're paying the debt off faster because the interest rate is lower. The key is not treating the cleared credit cards as free money. We've seen clients wreck this strategy by maxing out the cards again within eighteen months.

When Lenders Will Say No

Lenders knock back equity release applications when your income can't support the higher repayments, when your credit file shows missed payments or defaults, or when the property value doesn't stack up. If you've changed jobs recently, gone part-time, or started a new business, some lenders will decline you even if your equity position looks solid.

Self-employed applicants face tougher scrutiny. Most lenders want two years of tax returns showing consistent income, and they'll often assess you on the lower of the two years. If your most recent year shows a drop in profit, that's what they'll use to calculate your borrowing capacity. Some specialist lenders will assess based on one year of returns or even use your accountant's projections, but you'll need a broker who knows which lenders offer that flexibility.

The Refinance Process for Equity Release

The process takes between three and six weeks depending on the lender and how organised your paperwork is. You'll need to provide proof of income, recent loan statements, a valuation of your property, and details of what you're using the funds for. Some lenders want a detailed breakdown, others just need a one-line explanation.

The property valuation is where some deals fall over. If the valuer comes in lower than expected, your available equity shrinks. We push for a physical inspection rather than a desktop valuation when the property has been renovated or when the suburb has seen strong recent growth. A desktop valuation might miss those factors and cost you $50,000 in borrowing capacity.

Renovation Funding Without a Construction Loan

If you're doing a renovation that doesn't require council approval or major structural work, releasing equity through a standard refinance is faster and less restrictive than applying for a construction loan. Construction loans release funds in stages as the work progresses, which makes sense for a new build but creates unnecessary hassle for a kitchen and bathroom update.

Refinancing gives you the full amount upfront, so you can negotiate with tradies for a discount on upfront payment, and you're not waiting for the bank to inspect progress before releasing the next chunk of money. Just make sure your loan structure includes an offset account so you're not paying interest on the full amount while the renovation is underway.

Why Interest Rates Matter Less Than You Think

Most people focus on getting the lowest rate when they refinance, but the rate is only part of the equation. A lender offering 5.8% but capping your borrowing at $400,000 is worse than a lender at 6.0% who'll approve $500,000 if you need the extra funds. The difference in repayments might only be $60 per month, but the difference in access to cash is $100,000.

We prioritise lenders who'll give you the outcome you actually need, then negotiate the rate from there. Some lenders also slug you with higher ongoing fees, expensive offset account charges, or restrictive redraw conditions that make the loan harder to manage. A slightly higher rate with full flexibility often wins.

Tax Treatment of Released Equity

The tax implications depend entirely on what you use the funds for. If you release equity to buy an investment property or fund a business, the interest on that portion of the loan is generally tax deductible. If you use it for personal purposes like a holiday, car, or paying off non-deductible debt, it's not.

Keeping the funds separate is critical. If you release $150,000 and use $100,000 for an investment property and $50,000 for a new car, you need loan splits or a clear paper trail showing how the funds were used. Your accountant will need that detail at tax time. We set up loan splits during the refinance so the deductible and non-deductible portions are separated from day one, and there's no confusion later.

Call one of our team or book an appointment at a time that works for you. We'll calculate your usable equity, show you what different lenders will approve, and get your application lodged within 48 hours.

Frequently Asked Questions