Quick answer
Equity release means turning some of the value you own in a property into cash without selling it, usually by borrowing against it. In Australia the phrase has two uses: retirement products for people 60 and over, such as reverse mortgages, and, in business lending, a top-up, refinance, second mortgage or caveat loan that frees property equity to fund a business. The two work very differently.
Key points
- Equity is the property's value minus everything owed against it
- Retiree equity release products are consumer loans, not business finance
- Business equity release usually caps total lending at a set share of the lender's valuation
- Usable equity is always less than total equity
Equity release is the process of converting part of the value you hold in a property into spendable money while keeping ownership. Your equity is the value left over once every loan secured on the property is subtracted, and releasing it nearly always involves a lender advancing money against that surplus.
Why does the term mean two things?
Search “equity release” in Australia and most results talk about retirement. Moneysmart groups reverse mortgages, home reversion and the government’s Home Equity Access Scheme under the heading, all aimed at older homeowners who want income without selling. Those are consumer products with their own rules, and they aren’t built to fund a trading business.
In business lending, the phrase is used more loosely. A broker or lender talking about equity release for a business owner usually means pledging a house or a commercial building to back a business loan. Same idea, freeing locked-up value, but a different set of products, lenders and risks.
How do business owners release equity?
| Method | What happens | Typical speed |
|---|---|---|
| Top-up | Existing lender increases your current loan | Weeks |
| Refinance | Replacement lender clears the current mortgage and advances extra on top | Several weeks |
| Second mortgage | A new lender registers behind the first | One to two weeks |
| Caveat loan | Short-term funds backed by a caveat lodged on the title | Days |
| Sale and leaseback | Sell a commercial property and rent it back | Varies |
If your bank will top up your loan, that’s often the cheapest route and well worth taking seriously. Where the bank says no, or can’t move fast enough, a home equity business loan through a second mortgage or caveat lender keeps the existing home loan untouched.
How much can you release?
Lenders work from their own valuation, not your estimate, and cap total borrowing at a share of it, the loan to value ratio. Around 80 per cent is common for residential property, with lower caps for vacant land, rural holdings and specialised commercial buildings.
Worked example. Raj owns a Perth home the lender values at $1.1m, with $520k left on his mortgage. At an 80 per cent cap, total lending can reach $880k. Taking away the existing $520k leaves about $360k of usable equity. He needs $150k to fit out a second clinic, well inside the limit, which leaves a cushion if the valuation moves. Total equity is $580k, but only $360k is realistically available to borrow. Our property equity calculator runs the same sum on your figures.
Thinking about putting property behind a business plan? Have a quick word with us before anyone orders a valuation.
What should you weigh up first?
Using your home as security turns a business risk into a household risk. Match the loan term to what it funds, keep a realistic repayment plan, and add up every dollar the loan will cost, fees and break costs included. Our guide on the risks of using your home as business security is worth a read first. Our own lenders, HomeSec Business Finance and EquityTap, specialise in business loans secured by property.
Ready to put your equity to work?
Property equity is often the strongest card a business owner holds, and the right structure can unlock it without disturbing your home loan. Describing your property and plans on our form is about a minute’s work, and your score stays exactly where it is. Your enquiry isn’t sold on, so there’s no stream of unknown callers, just one specialist who has read it and rings you. Give us a fair estimate of the property’s value and the balance still owing, and we can talk about a sensible amount on that first call.
Frequently asked questions
Can I use a reverse mortgage to fund my business?
Reverse mortgages are designed for retirees aged 60 and over to fund living costs, and they're regulated as consumer credit. They aren't a practical way to fund a trading business. Owners wanting to borrow against a home for business purposes normally use a business loan secured by the property instead.
How much equity can I release from my property?
Most lenders cap total borrowing against a home at around 80 per cent of their valuation, sometimes less for commercial or rural property. Subtract what you already owe from that cap and you have a rough figure for usable equity, before serviceability is considered.
What's the difference between a top-up and a second mortgage?
A top-up increases your existing loan with the same lender. A second mortgage leaves the first loan alone and adds a new lender in second position. The second option is useful when the first lender says no or won't move quickly.
Is releasing home equity for a business risky?
It puts your home behind the business debt, so if the business can't repay, the lender can ultimately enforce against the property. That's why the amount, the term and the plan for repaying it matter more than with unsecured borrowing.
How long does business equity release take?
A caveat loan can be arranged in days. A second mortgage often takes one to two weeks. A full refinance with a bank commonly takes several weeks because of the valuation, credit assessment and discharge of the old loan.