How much equity do I have in my home?

Most homeowners are wrong about their equity, and they are wrong in both directions.

Some are anchored to what they paid years ago and have no idea how much the market has done for them since. Others have watched a neighbour’s sale price and assume theirs is the same, then get a shock when the numbers are run properly. Both are guessing at the single figure that determines whether they can buy the next place, renovate this one, or should be doing neither yet.

The calculation itself takes ten seconds. Getting the inputs right is the actual work, and knowing which portion of the answer a lender will let you touch is what turns it into a decision.

What is home equity?

Equity is the share of your home you own outright. Everything else belongs, in practical terms, to the bank.

When you bought with a 20% deposit, you started with 20% equity. Every principal repayment since has moved a little more of the property from the bank’s column to yours, and every movement in the market has moved the whole total up or down underneath both of you.

That is the entire concept. What makes it slippery is that one of the two inputs is an estimate. Your loan balance is a fact you can read off a statement. Your property’s value is an opinion until the day someone pays for it, which is why two reasonable people can calculate very different equity for the same house.

How to calculate your equity

Two figures, one subtraction.

Three worked examples

Same formula, three very different positions.

Example 1: the straightforward owner-occupier

Bought six years ago, has been paying the loan down steadily, market has been reasonable.

Example 2: the market did the work

Bought at $700,000 five years ago with a $560,000 loan. The suburb has run hard since, and the loan has come down at the same time.

Example 3: the market went the other way

Bought at $850,000 with a 10% deposit, so a $765,000 loan and lenders mortgage insurance. Two years later the local market has softened about 8%.

How to find out what your home is worth

Four ways to get the number, with genuinely different accuracy, cost and purpose.

Our guide on how much your house is worth goes deeper on all four methods, and instant house valuation explains what an automated model can and cannot see.

What increases your equity

Four levers, and you only control two of them.

A word on renovating for equity

Renovation is the one lever people reach for expecting a guaranteed return, and it is the least reliable of the four. A $60,000 kitchen and bathroom refresh in a suburb where similar homes sell renovated can add more than it cost. The same spend on a home already at the top of its street usually will not.

The test is not whether the work improves the house. It is whether it moves the house into a bracket the street actually supports. If nothing in your suburb sells above $1.1 million, a renovation that takes you to $1.3 million on paper has not created $200,000 of equity. Our four-week preparation plan covers the lower-cost end of this, where the returns are far more reliable.

What reduces your equity

• Falling property values. The fastest way to lose equity, and the one with no action attached. It only becomes a real loss if you sell into it.
• Borrowing more against the home. A top-up loan, a renovation split or a line of credit all raise the debt while the value stays put.
• Redraw and offset drawdowns. Pulling money back out of a loan you had paid ahead on restores the debt, and with it the equity you thought you had banked.
• Interest-only periods. The balance does not move for the duration, so the only equity growth available is whatever the market provides.
• Selling costs. Commission, marketing, conveyancing and any repairs come out of the proceeds, which is where the largest single deduction usually sits.

What you can use equity for

Equity is only useful when it is doing something. The realistic options, and how lenders tend to view them:

Buying another home

The usual sequence is to establish your usable equity, then work out what deposit and purchase costs the next property needs. If you are selling this one, the equity converts to cash at settlement and the sums are simple. If you are keeping it, you borrow against the equity instead, and you are then carrying two loans, which is a serviceability question rather than an equity one.

If you have not settled the sell-or-hold question yet, our guide on whether you should sell works through it, and whether now is a good time covers the market side.

Renovating

Borrowing against equity is typically the cheapest money available to a homeowner, because it is secured against the property. That does not make every renovation worth doing. Run the value question first, then the finance question.

Investing

Using equity in an existing home as the deposit on an investment property is the most common way Australians buy their second property. The equity does not leave your home and you do not sell anything. You take on more debt, secured across both properties, and the investment has to service it.

Refinancing

Moving the same debt to a better rate does not change your equity at all, since neither the value nor the balance moves. It changes your repayments, which changes how fast equity grows from here. A lower rate sends more of each repayment to principal.

How much equity do you need?

This is where total equity and usable equity separate, and where most of the disappointment happens.

Lenders generally allow total borrowing against a property up to about 80% of its value before lenders mortgage insurance enters the picture. So your usable equity is 80% of the value, minus what you already owe.

On a $900,000 home with a $500,000 loan, that is $720,000 minus $500,000, so $220,000 of usable equity against $400,000 of total equity. The $180,000 difference is the buffer the lender keeps, and no amount of arguing moves it.

Loan-to-value ratio, and why lenders care

LVR is the same relationship expressed from the other direction: your loan as a percentage of the property’s value. It is the number that decides what a lender will do for you.

What selling actually leaves you

If your plan is to convert equity into cash by selling, there is one more subtraction, and it is bigger than people expect.

Selling costs come out of the proceeds before anything reaches you. Conveyancing, marketing, any pre-sale repairs and, on the traditional route, the agent’s commission. At 1.8% to 3.5%, commission on a $1.2 million sale is $21,600 to $42,000. That is equity you spent years building, handed over at settlement.

Our savings calculator runs this against your own price, and the cost of selling a house covers every line item, including legal fees and advertising costs. If you want the sale itself to move quickly, how to sell your house fast covers the campaign side, and settlement day explained covers the moment the money actually arrives.

Common mistakes

• Using an outdated value. Your purchase price, a three-year-old appraisal or the council rates notice are all the wrong number, sometimes by hundreds of thousands in either direction.
• Confusing equity with usable equity. The 80% rule removes a large slice of the total, and it is better to find that out early.
• Forgetting selling costs. Equity on paper is not the amount that lands in your account, and commission is the biggest gap between the two.
• Anchoring to the best sale on the street. Comparable means comparable: similar size, condition, aspect and land.
• Assuming renovation spend converts to equity. Sometimes it more than does. Often it does not, particularly at the top of a street’s price range.
• Treating equity as spare money. Accessing it means borrowing, with repayments and interest attached, secured against the home you live in.

The short version

Equity is a simple subtraction sitting on top of one uncertain number. Get the value right and everything downstream, whether you can buy, whether you should renovate, what a sale would actually leave you, falls out of it.

Start with a current, evidence-based estimate rather than a memory or a guess. Work out both the total and the usable figure. Then subtract the costs of whichever route you are considering, because equity you hand to someone else at settlement was never really yours to plan with.

Frequently asked questions

How do I calculate the equity in my home?

Take your property’s current market value and subtract the balance still owing on your mortgage. If your home is worth $900,000 and you owe $500,000, you have $400,000 in equity. The number that trips people up is the value: use a current estimate based on recent comparable sales, not what you paid for it.

How do I know how much equity I have?

You need two figures. Your loan balance is on your latest mortgage statement or in your banking app, and it changes every repayment. Your property value has to be estimated, because nobody knows it exactly until you sell. An online valuation based on comparable sales gives you a defensible range in about a minute.

What is considered good equity?

As a rough guide, owning at least 20% of your home outright is the point where most financial options open up, because it puts your loan-to-value ratio at or below 80%. Below that, lenders typically require lenders mortgage insurance and your refinancing choices narrow. Above 40% you have real flexibility.

Can I borrow against my home’s equity?

Usually yes, but not all of it. Lenders generally let you borrow up to about 80% of your property’s value in total, so your usable equity is 80% of the value minus what you still owe. Approval also depends on your income, expenses and credit history, not just the equity itself.

How much equity do I need to buy another property?

A common rule of thumb is enough usable equity to cover a 20% deposit plus purchase costs such as stamp duty and legal fees on the new property. For a $700,000 purchase that is often around $170,000 to $190,000 depending on your state’s stamp duty. Some lenders will work with less, at the cost of lenders mortgage insurance.

Does renovating increase equity?

It can, but not dollar for dollar and not always. Kitchens, bathrooms and anything that adds functional living space tend to return the most. Highly personal choices, swimming pools in the wrong market and over-capitalising beyond what your street supports often return less than they cost.

Does refinancing affect equity?

Refinancing the same loan amount to a different lender does not change your equity at all, because both your value and your debt stay the same. Refinancing to borrow more does reduce it, because your debt rises while the property value has not moved.

Can I use equity without selling my home?

Yes. Refinancing, a top-up loan, a line of credit or a separate loan split all let you access equity while keeping the property. You are borrowing against the home rather than cashing it out, so the debt and the repayments both go up.

How accurate are online property valuations?

A good automated valuation reads recent comparable sales around your address and is usually close enough to plan with, particularly in suburbs with plenty of similar homes selling. It cannot see inside your property, so a recent renovation or a poor floorplan will not be reflected. Treat it as a well-evidenced range, not a precise figure.

What is the difference between equity and usable equity?

Equity is your property’s value minus your loan balance, the full theoretical amount. Usable equity is the portion a lender will actually let you access, typically 80% of the value minus your loan balance. The gap between the two is the buffer lenders keep, and it surprises most homeowners the first time they see it.