How Much Equity Do You Really Have in Your Home? A Guide for Perth Homeowners

xIf you've owned your home for a few years, there's a good chance you've heard people talking about using their equity.

Perhaps you're considering renovations, buying an investment property or making another property purchase. Or maybe you're simply curious about how much equity you've built up.

But here's something many homeowners don't realise: the equity you have in your property isn't necessarily the amount you can access.

Let's break down how home equity works, what you might be able to use it for and what to consider before making any decisions.

What Is Home Equity?

Put simply, home equity is the difference between the current value of your property and how much you still owe on your mortgage.

For example, if your home is worth $900,000 and your remaining home loan is $550,000, you have $350,000 in equity.

Equity can build over time as you pay down your mortgage or if your property's value increases.

Of course, property values can also fall, which means your equity can change in either direction.

For Perth homeowners, particularly those who've owned their property for several years, it may be worth understanding what their current position looks like.

How Much Equity Can You Actually Access?

This is where things get interesting.

Having $350,000 in equity doesn't mean you can automatically borrow another $350,000.

Lenders generally consider what's known as usable equity — the portion of your equity you may be able to borrow against, subject to their lending criteria.

A common starting point is calculating usable equity based on 80% of your property's value, minus your outstanding mortgage.

Here's an example:

In this scenario, the homeowner has $350,000 in total equity, but potentially $170,000 in usable equity.

This is an illustration only. Some lenders may allow borrowing above 80% of a property's value, although additional costs such as Lenders Mortgage Insurance (LMI) may apply.

Importantly, having usable equity doesn't automatically mean you'll be approved to access it.

Lenders will also assess your income, expenses, existing debts, borrowing capacity and ability to manage the additional repayments.

How Do You Know What Your Home Is Worth?

Your home's current value plays a big part in determining your equity.

Online property estimates and recent sales in your suburb can provide a useful starting point, but they're not necessarily the value a lender will use.

When assessing an application to access equity, a lender may arrange its own property valuation.

That valuation can differ from an online estimate or real estate agent's appraisal, so it's worth understanding your position before making plans based on a particular figure.

What Can You Use Your Home Equity For?

Depending on your circumstances and the lender's requirements, accessing equity may help you work towards a range of goals.

Renovating or improving your home

You might be planning a kitchen renovation, an extension or other improvements to make your home better suited to your needs.

Using equity could be one way to finance these projects, although it's important to weigh up the cost of borrowing against the potential benefits.

Buying another property

Some homeowners use equity in their existing property to help fund the deposit and purchasing costs for their next home or an investment property.

This may reduce the amount of cash savings needed upfront, but it also means taking on additional debt.

Investing or other major expenses

Equity may also be used for other purposes, depending on lender policies and your financial circumstances.

However, borrowing against your home to fund an investment or major expense carries risks. It's important to consider whether the longer-term cost and commitments make sense for what you're trying to achieve.

How Do You Access Your Home Equity?

Accessing equity generally involves applying to borrow additional funds using your property as security.

Depending on your situation, this could involve:

Increasing your existing home loan: Applying to borrow more through your current lender.
Refinancing: Moving to another loan or lender and potentially increasing the amount borrowed.
Setting up a separate loan split: Keeping additional borrowing separate from your existing home loan, where available.

Each option can have different costs, features and lending requirements.

The right approach depends on what you're borrowing for, your financial position and how you want to manage the repayments.

What Should You Consider Before Accessing Equity?

While equity can create opportunities, accessing it isn't free money. You're taking on additional borrowing, usually secured against your home.

Before proceeding, it's worth considering:

Higher repayments: Borrowing more generally means increasing your debt and repayment commitments.
Interest costs: Even if repayments seem manageable, borrowing over a longer period can add significantly to the total interest paid.
Changing interest rates: If rates increase, repayments on variable-rate borrowing may rise.
Property value changes: If your home decreases in value, the equity you have could reduce.
Your longer-term plans: Additional debt could affect your ability to borrow again or make other financial decisions in the future.

And because your property is being used as security, there can be serious consequences if you're unable to meet the repayments.

If you're borrowing for investment purposes, it's also worth speaking with your accountant or financial adviser about the broader financial and tax implications.

Is Accessing Your Equity the Right Move?

The most useful question isn't always "How much equity can I access?"

It's also "Does borrowing against my home make sense for what I'm trying to achieve?"

Sometimes accessing equity can be a practical way to fund your next step. In other situations, saving, waiting or exploring different finance options may be more appropriate.

At Ledge Home Loans, we can help you understand how much equity you may have available, how different lenders assess applications and what your borrowing options could look like.

The aim isn't simply to borrow more. It's to understand your position and make an informed decision that supports your goals.

Curious About How Much Equity You Have in Your Home?

Whether you're planning renovations, considering another property or simply want to know where you stand, we're here to help.

Get in touch with the Ledge Home Loans team for a friendly conversation about your options.

General information only. This article does not take into account your individual objectives, financial situation or needs. Loan approval and the ability to access equity are subject to lender criteria.