Home Equity and Refinancing: A Pascoe Vale Guide

Your usable equity is usually 80% of your home's value, minus what you still owe. That figure is often smaller than the total equity you have on paper, and it gives a starting estimate of how much a lender may let you borrow in a refinance, subject to its valuation, your income and expenses, and its policy.

For homeowners in Pascoe Vale, in the City of Merri-bek, a few minutes of calculation can show whether releasing equity is realistic. It can also show whether a straight switch to a different lender is the more sensible move.

How Do You Calculate Home Equity?

Home equity is your property's current value minus your outstanding loan balance. Equity is the difference between your property's value and the amount you still owe on your home loan.

There are two numbers to work out. The first is total equity: value minus loan balance. The second is your loan-to-value ratio (LVR), which is your loan balance divided by your property's value, shown as a percentage. If your loan is $55,000 for every $100,000 of value, your LVR is 55% and your total equity is 45%.

For the value, start with recent sales of similar homes nearby and any appraisal from a local agent. Treat the result as an estimate only. Your lender will form its own view during a property valuation.

Usable Equity: Why 80% of Value Is the Line That Matters

Usable equity is generally 80% of your property's value minus your current loan balance. It is an estimate of the amount a lender may let you borrow, subject to its valuation, your income and expenses, and its policy.

The 80% line matters because lenders mortgage insurance (LMI) generally applies when the amount borrowed exceeds 80% of the property value. You can borrow past that point with some lenders, but the insurance premium adds to your costs. It also leaves you with less of a buffer if values soften.

A quick way to run the numbers is to take your value, multiply by 0.8, then subtract your loan balance. If the answer is negative, you have no usable equity at this stage. Paying the loan down or waiting for values to rise would change that.

A lender will also test whether your income covers the extra repayments. Lenders still test income, expenses, and repayments before releasing equity. Usable equity is a ceiling, and it does not mean approval.

Why a Lender's Valuation Can Change Your Equity Figure

A lender's valuation can come in above or below your estimate, and your usable equity moves with it. Lenders use their own valuation, which is often more conservative than a portal figure.

Consider a hypothetical homeowner who plans to refinance their home loan and borrow extra for a renovation. Using an online estimate, they work out that for every $100,000 of value they owe $55,000. At 80%, that suggests usable equity of $25,000 per $100,000 of value.

Their broker suggests testing a lower value before they commit to builders. If the lender values the home 5% below the estimate, each $100,000 becomes $95,000. At 80% that is $76,000, minus the $55,000 owed, which leaves $21,000 of usable equity for every $100,000 of the original estimate.

In this example, the homeowner scales the renovation budget back to match the lower figure. Planning around the lower figure reduces the risk of a shortfall after the valuation, but approval still depends on the lender's assessment of your income, expenses and credit history. Valuations can also come in higher, but planning around the cautious number helps protect your budget.

What Does Releasing Equity Actually Cost?

Releasing equity increases your loan amount, so your repayments and total interest rise. The extra debt is secured against your home and is usually repaid over many years.

As an illustration, suppose someone borrows an extra $100,000 at an example rate of 6.75% p.a. over 25 years. The repayment on that portion would be about $691 per month. That rate is illustrative only, and your actual rate depends on your lender, your deposit size and your loan structure.

Say this homeowner used the funds to consolidate higher-rate debts. Their combined monthly commitments dropped, which improved their cashflow. The trade-off is that debts once cleared within a few years are now spread over 25, so they pay more interest overall unless they make extra repayments. Our extra repayment calculator shows how added repayments change the picture.

If the money is for an investment, ask your accountant how the borrowing will be treated for tax. The outcome depends on your circumstances and how the loan is structured.

Using a Fixed Rate Expiry to Review Your Equity

A fixed rate expiry is a natural time to check your equity, because you are already deciding what to do with your loan. Reviewing your options before the fixed term ends gives you time to compare lenders rather than defaulting to your current one.

At that point you can ask two questions. Is your current rate still suitable, and has your equity grown enough to support a goal such as a renovation or deposit? Our guide to fixed rate expiry explains what to look for, and the refinancing to release equity page covers how access to equity works in practice.

A refinance can carry costs, such as discharge fees from your current lender and possibly application fees from the new one. The right move depends on how large those costs are compared with what you gain. A loan health check puts those figures side by side before you decide.

If you would like local support, our team works with homeowners across the northern suburbs, including through our Pascoe Vale mortgage broker service. Call one of our team or book an appointment at a time that works for you, and we will calculate your equity with you and show you your options for a refinance.

Frequently Asked Questions