Quick answer
Home equity is the gap between your home's value and what you owe on it. You can use it for a business by increasing your existing home loan, opening a line of credit, taking a second mortgage with another lender, or giving a lender a caveat or mortgage over the property as security. Most lenders cap total borrowing at around 70 to 80 per cent of the home's value, so usable equity is less than total equity.
Key points
- Usable equity is not total equity: it is what's left after the lender's maximum loan-to-value ratio, less your current debt
- A bank top-up or line of credit is often the cheapest route if you qualify, but it can be slow and the funds are tied to your home loan
- A second mortgage from another lender can unlock equity without touching your first loan, usually at a higher total cost and with a faster process
- If the business can't repay, the home is at risk; the security you give is the single biggest decision in the process
- Use equity for assets and opportunities with a clear path to repayment, and borrow only what you need, for the time you need it
For many owners the biggest asset they hold is not the business. It’s the home they have been paying off for years. When funding is needed for equipment, stock, a second site or a bad patch, the thought comes up: “I’ve got equity in the house, can I use it?”
You can, and a lot of Australian businesses have been built that way. It can also be the riskiest decision an owner makes, because the thing at stake isn’t only the business. This guide explains the ways to use home equity, how to work out what you can actually access, what it costs in dollars, and where the traps sit.
What is home equity, exactly?
Equity is your home’s value minus what you owe against it. If your home is worth $1.2m and your mortgage balance is $500,000, you hold $700,000 of equity on paper.
You can’t borrow all of it. Lenders cap total borrowing against a property as a percentage of its value, called the loan-to-value ratio or LVR. The cap varies by lender, product and property. For a bank on a standard residential property it is often around 80 per cent; for a non-bank lender doing a second mortgage it may be lower or higher, depending on the property and the deal.
| Example | |
|---|---|
| Home value (valuation) | $1,200,000 |
| Maximum total borrowing at 75% | $900,000 |
| Less existing mortgage | $500,000 |
| Usable equity | $400,000 |
Our property equity calculator does this sum with your numbers, and the guide on calculating usable equity explains the pitfalls, such as using an online estimate instead of a valuation.
What are the ways to use it?
1. Top up or redraw on your existing home loan
If you have paid ahead on your mortgage, you may be able to redraw. Or you may ask your bank to increase the loan. It is often the cheapest option, because you stay with a lender you know. The catch is that the business borrowing is mixed up with your home loan. It runs over the same long term, which can mean paying for a short-term business need over 25 years, and it can create tax records you’ll want your accountant to look at. It also needs the bank to agree that the purpose is acceptable.
2. A home equity line of credit
A line of credit secured by your home lets you draw and repay up to a limit. It suits uneven needs, because you pay for what you use. Banks frequently offer these to customers with a good record. Set it up before you are in trouble.
3. A second mortgage
A second mortgage is a loan from a different lender, secured behind your first mortgage. Your existing home loan stays as it is. Non-bank lenders write these, and they can be quicker than a bank, often assessing the property and the plan more than the history. The total cost over a short term is usually higher than a bank top-up, but a bank may not be able to move at the speed you need. Our guide to how second mortgages get approved covers the steps.
4. Home as additional security for a business loan
Rather than borrowing against the home directly, a business loan can be secured by a mortgage over your home. This is sometimes called a cross-security or additional security arrangement. It can improve the terms of a business loan, but it ties the loan to your house in the same way.
5. A caveat
A caveat is a notice lodged on the title that records a lender’s interest. It can be used in some short-term arrangements. It’s a different tool with a different purpose; see our caveat loan guide for how it works.
Which route fits which need?
| Need | Likely fit | Why |
|---|---|---|
| Ongoing flexibility, variable needs | Line of credit secured by the home | Pay for what you draw |
| A planned purchase, known amount, time to arrange | Bank top-up | Usually the lowest cost |
| Quick access, tight timeline, bank can’t move in time | Second mortgage | Often faster, at a higher cost |
| Improve terms on a larger business loan | Home as extra security | Better lender comfort, more risk to you |
| A short bridge of weeks to a few months | Short-term property-backed loan | Built for temporary needs |
Banks deserve a fair look first. If your lender will lend on reasonable terms and in time, that’s likely to be the cheapest money you’ll find. If it said no or can’t move quickly, the other routes exist.
What will it cost in dollars?
Ask for the total cost of the arrangement, not just the headline. Costs usually include:
- Establishment or application fees.
- Valuation fees.
- Legal and settlement costs, including title searches and registration fees charged by your state land registry.
- Ongoing account or line fees.
- Interest over the term, which on a long bank loan can add up to a large sum even where the monthly figure looks small.
- Exit or discharge fees when you repay.
A 25-year top-up that costs less each month can cost far more in total than a three-year loan. Put each option into the loan cost comparison calculator and compare repayable totals, then ask what happens if you repay early.
What are the real risks?
Here the honest part matters most.
- Your home is the security. If the business struggles and the loan isn’t repaid, the lender can enforce against the property. Our guide on the risks of using your home as business security goes through it carefully.
- Valuations move. A fall in property values reduces your equity and can affect refinancing.
- Shared consequences. Other owners, a partner or family members may be affected. Co-owners usually need to sign, and lenders may require independent legal advice.
- Mixed debts. Putting business borrowing into your home loan can make it hard to separate for tax or to repay quickly.
- A short need funded long. Using a 25-year loan for a 6-month need is a quiet cost.
Before you sign, ask yourself three plain questions. What is the specific repayment source? What happens if sales fall by a third? If I had to sell the business, could I still repay this?
If you aren’t sure about the answers, talk through your numbers with us before committing.
What do lenders look at?
Property-backed lenders weigh three things: the property (value, location, type, existing debts), you (identity, ownership, credit history, ability to repay), and the purpose and exit (what the money’s for and how it is repaid). A clear exit helps enormously. “I’ll repay from the sale of X in four months” or “from the contract payment due on this date” is far more convincing than “from future profits”.
Documents commonly include proof of identity, rates notice and title details, a statement of your current mortgage, recent bank statements and a brief description of the purpose. A valuation, whether kerbside, desktop or full, sets the number. Our guide to how valuations work explains the differences.
A worked example: the café owner and the second site
This is an invented example. A café owner has a home worth $1.1m with $450,000 owing, and wants $120,000 to fit out a second site. Her bank assesses at a maximum LVR of 80 per cent, so the usable equity is $430,000, comfortably above her need.
Option A: bank top-up. Approval takes six weeks, and the $120,000 sits in a 25-year home loan. Monthly repayments are low, but the owner chooses to make extra repayments to shorten the term.
Option B: second mortgage. A non-bank lender can settle in about two to three weeks. It costs more in total, over a two-year term, and requires a clear plan to repay or refinance at the end.
The lease on the second site starts in five weeks, so the owner uses Option B as a bridge, with a planned refinance into a bank facility once the new site has three months of trading. She asked her accountant first and took independent legal advice on the mortgage. The dollars cost more, and the timing was worth it for her.
Mistakes to avoid
- Using an online estimate, not a valuation, to plan how much you can borrow.
- Borrowing the full usable amount “just in case”.
- Funding a short-term need on a long-term loan and never reviewing it.
- Not telling co-owners until the paperwork arrives.
- Ignoring the exit: how and when the loan ends.
- Skipping advice from your accountant and a solicitor.
Thinking of using your home: what’s the next step?
Using home equity is a legitimate and common way to back a business, and when the numbers and the purpose are sound it can open doors that unsecured lending won’t. It is also a decision that deserves a clear head, real figures and an honest plan for repayment.
If you want to see what your equity could support, our enquiry takes about a minute. Asking doesn’t involve a credit check, so your file stays untouched. We keep your details in-house instead of sending them to a stack of lenders, and a real person reads your situation, then calls you. Please be accurate about your property, your existing debts and what you need the money for, so the right option comes up first.
Frequently asked questions
How do I calculate how much equity I can use?
Take your home's current value, multiply by the lender's maximum loan-to-value ratio (say 75 per cent), and subtract what you owe. A $1.2m home with $500,000 owing, at a 75 per cent limit, gives $900,000 less $500,000, or $400,000 of usable equity. A valuation, not a guess or an online estimate, sets the final figure.
What are the main ways to use home equity for a business?
The usual routes are a top-up or redraw on your existing home loan, a home equity line of credit, a second mortgage with a different lender, or offering your home as additional security for a business loan. Each has different costs, speed, and effects on your existing mortgage.
Will the lender assess me as a consumer or as a business?
It depends on the purpose and the lender. Loans for business purposes generally fall outside consumer credit rules, though lenders still assess your ability to repay and the value of the property. Some lenders will lend largely against the property; others will want to see business and personal income.
Can I use equity if my business has a poor credit history?
Sometimes. Property-backed lenders often put more weight on the asset and the amount of equity than on the business's recent record. The terms may be less favourable, and the loan must still be affordable and have a believable exit. Be upfront about any defaults or arrears.
What happens if I can't repay a loan secured against my home?
The lender can enforce its security, which can ultimately mean selling the property. Before that, there are usually steps: arrears notices, hardship discussions, restructuring. The earlier you speak to a lender about difficulty, the more options you have. This is the main reason to borrow cautiously against your home.
Do I need my partner's consent to use the home as security?
If the property is jointly owned, all owners generally must sign the mortgage. Lenders may require independent legal advice for anyone who isn't the borrower. Plan for this early, because it affects timing and can lead to important conversations about risk.