What Is Home Equity? — Australian Guide (2026)
Home equity is the portion of your property’s value that you own outright — the difference between what your property is worth and what you still owe on your mortgage. For many Australians, home equity represents their largest single asset.
How to Calculate Home Equity
$$\text{Home Equity} = \text{Property Value} - \text{Outstanding Loan Balance}$$
Example:
- Property value: $950,000
- Outstanding mortgage: $540,000
- Home equity: $410,000
As you repay your mortgage and/or the property increases in value, your equity grows.
How Equity Builds Over Time
1. Through Loan Repayments
Every principal-and-interest repayment includes a principal component that reduces your outstanding balance — building equity. In the early years of a loan, most of each repayment is interest. As the loan matures, more goes to principal and equity builds faster.
$600,000 loan at 6%, 30-year term:
| Year | Outstanding balance | Equity from repayments alone |
|---|---|---|
| 1 | ~$592,000 | ~$8,000 |
| 5 | ~$559,000 | ~$41,000 |
| 10 | ~$510,000 | ~$90,000 |
| 15 | ~$447,000 | ~$153,000 |
| 20 | ~$362,000 | ~$238,000 |
| 25 | ~$244,000 | ~$356,000 |
| 30 | $0 | $600,000 |
2. Through Capital Growth
If your property increases in value, your equity increases — even without additional repayments. Property prices in Australia have historically grown over the long term (CoreLogic data), but prices do not always rise and can fall significantly in specific periods and markets.
Example:
- Bought at $700,000, outstanding loan $560,000 → initial equity: $140,000
- Property value rises to $900,000 over 5 years → equity: $900,000 − $540,000 (after 5 years of repayments) = $360,000
3. Through Extra Repayments
Making extra repayments reduces the outstanding balance faster, accelerating equity growth above what the regular amortisation schedule produces.
Total Equity vs Usable Equity
Not all equity is accessible. Lenders in Australia typically allow equity release only up to an 80% LVR (loan-to-value ratio) — they want at least 20% of the property’s value to remain as a buffer.
Usable equity = 80% of property value − outstanding loan balance
Example:
- Property value: $950,000
- 80% of value: $760,000
- Outstanding loan: $540,000
- Usable equity: $760,000 − $540,000 = $220,000
Although total equity is $410,000, only $220,000 is typically accessible without paying Lenders Mortgage Insurance (LMI). Some lenders extend to 90% LVR for equity release, but this requires LMI.
What Loan-to-Value Ratio (LVR) Means for Equity
LVR is the ratio of your loan to the property’s value:
$$\text{LVR} = \frac{\text{Outstanding loan}}{\text{Property value}} \times 100%$$
| LVR | Equity position | Equity release available? |
|---|---|---|
| >90% | Very low | Generally no — high risk LVR |
| 80–90% | Moderate | Only with LMI |
| 60–80% | Good | Some lenders allow top-up |
| <60% | Strong | Most lenders allow equity release |
Negative Equity
If your outstanding loan balance exceeds your property’s current value, you are in negative equity — sometimes called “underwater” or “upside-down” on your mortgage.
Example:
- Property value: $650,000 (fell from purchase price of $750,000)
- Outstanding loan: $700,000
- Equity: −$50,000 (negative equity)
Negative equity makes it very difficult to refinance or sell without topping up the shortfall. It has occurred in specific Australian markets during property downturns (e.g., Darwin, parts of Perth in the mid-2010s, some apartment markets post-COVID correction).
What Can You Do With Home Equity?
Once you have built usable equity, you may be able to:
- Refinance and access cash for renovations, investment, or other purposes
- Use it as a deposit for an investment property
- Open a line of credit secured against the equity
- Fund renovation that may further increase property value
→ See Accessing Home Equity — How to Use It → See Using Home Equity to Invest
Frequently Asked Questions
Does equity earn interest?
No — equity is the value of your ownership stake, not a deposit. It does not generate interest income. However, it is a store of wealth that can be leveraged (borrowed against) or realised when you sell.
Does paying more rent build equity?
No — rent payments do not build equity. Only mortgage repayments on your own property, and capital growth in the property value, build equity.
How often does equity change?
Your equity changes continuously as:
- Each repayment reduces your loan balance (equity increases)
- Property market conditions change (equity increases or decreases)
Formal valuations are typically done when you apply to access equity (refinance, top-up, equity release) — not continuously by the lender.
Is equity taxed when I access it?
Accessing equity by refinancing (increasing your loan) is not a taxable event — you are borrowing, not receiving income. However, using accessed equity for investment purposes may create deductible interest, and using it for personal purposes does not. Speak with a tax agent.
Related Guides
- Accessing Home Equity — How to Use It
- Using Home Equity to Invest
- Home Equity Calculator
- LMI Explained
- Mortgage Repayment Hub
This article provides general information about home equity in Australia. Property values and loan balances change over time. Equity is not guaranteed — property prices can fall. For advice tailored to your situation, speak with a licensed mortgage broker or financial adviser. Find one through MoneySmart.