What is a Home Equity Loan? Everything Homeowners Need to Know

The idea of a home equity loan has become increasingly relevant in today’s NSW property market, where house prices are at record highs. As of 2025, the median house price across Greater Sydney sits around $1.7 million, reflecting steady growth and a competitive real estate scene.

For homeowners, this growth translates to a bigger pool of property equity just waiting to be tapped, which they can benefit from with a home equity loan. With this type of financing, homeowners can turn a portion of their property’s value into cash for renovations, consolidate high-interest debts, or even free them up for a new investment property purchase. 

Let’s take a closer look at what a home equity loan is, how it works, and how you can benefit from it to make the most of your property’s value in today’s market.

Need expert help with your home equity loan? Chat with our North Sydney mortgage brokers today and unlock your home’s potential!

What is a Home Equity Loan?

A home equity loan is a way for homeowners to unlock the value of their property and turn it into cash. Simply put, it’s a loan that lets you borrow against the difference between your property’s current market value and what you still owe on your current home loan.

This type of loan differs from a mortgage, which is for buying a property. A home equity loan uses the equity in your current property to fund other financial needs like renovations, paying off high-interest debts, or investing in an investment property.

Let’s break down the process.

How Does a Home Equity Loan Work?

A home equity loan is based on the gap between your home’s market value and the remaining balance on your mortgage. This gap is often called “usable equity.”

How much can you borrow?

Across Australia, most lenders will let you borrow up to 80% of your usable equity. In Sydney and throughout NSW, this benchmark is also standard practice, though some lenders may offer different terms based on your credit history and individual circumstances.

For example, if your home is worth $1.7 million and your current loan balance is $900,000:

• 80% of $1.7 million = $1.36 million
  
  
• Usable equity: $1.36 million - $900,000 = $460,000

So, you might be able to access up to $460,000.

How do repayments work?

You’ll be making regular repayments, either monthly or fortnightly, based on the loan’s interest rate and term. 

For instance, if you borrow $100,000 at a 6% interest rate over 15 years, your repayments would be around $843 per month.

Current Home Equity Loan Rates in Sydney

As of 2025, the average home equity loan rate in Sydney is around 6.2% per annum for a variable home loan. Fixed rates can be slightly higher, depending on your lender and the loan term you choose. (sources: ANZ, CBA, Domain)

How are rates determined?

Rates are influenced by the current market conditions, the Reserve Bank’s cash rate, and lender policies. Your credit history, income, and overall risk profile also play a role in what you’re offered.

It’s important to shop around and compare comparison rates to make sure you’re getting the best deal for your situation.

How to Qualify for a Home Equity Loan

Getting approved for a home equity loan isn’t automatic. It depends on several key factors lenders use to assess your eligibility. Here’s what you’ll typically need:

• A good credit history – clear record of managing your debts
• A steady current income – stable earnings to make regular repayments
• Enough usable equity in your property – usually up to 80% of its value
• Low existing debt level – lenders want to see you’re not overextended
• Up-to-date property revaluation – lenders may need a new valuation to confirm your equity
• Proof of personal circumstances – including current employment and financial security

Meeting these requirements can boost your chances of loan approval and help you tap into your home’s full financial potential.

How to Apply for a Home Equity Loan

Applying for a home equity loan is straightforward when you know what to expect. Here’s a step-by-step guide from start to settlement.

1. Check Your Loan Equity and Borrowing Power

Calculate your useable equity by subtracting your current loan balance from your property’s market value. This figure shows how much loan equity you can tap into.

2. Seek Professional Advice

Before going ahead, consider professional advice. A mortgage broker can help you see if this loan fits your property investment goals and long-term financial strategy.

3. Gather the Right Documents

Lenders usually ask for proof of your current income, details of any personal loan or additional debt, and your current home loan statement. This helps them verify your financial position.

4. Submit the Application

Complete the application with all the required details. Accuracy and honesty here will speed up the process.

5. Valuation and Assessment

The lender will organise a property revaluation to confirm property prices and update your loan equity. They’ll also assess your credit score and overall finances.

6. Receive Conditional Approval

Once the lender has reviewed everything, they’ll send you an offer with the rate loan and repayment details. Take this time to read through and ensure it’s a good fit for your needs.

7. Final Approval and Settlement

If you’re happy to proceed, sign the paperwork to finalise your supplementary loan. Funds will be released so you can start renovations, consolidate debts, or make a new property investment.

Throughout the process, working with a broker can make it easier to compare lenders and secure the right loan term for your circumstances. They’ll help you understand how property values affect your borrowing power and make sure you’re on track for a successful application.

Looking to tap into your home’s equity and need some guidance? 

Our team of Sydney mortgage brokers at Mortgage Brokers Northern Beaches can help you navigate every step of the home equity loan application process. We’ll find the best rate loan for your personal circumstances and ensure you understand every detail, from loan equity to repayments.

Reach out today, and let’s make your property equity work for you!

Frequently Asked Questions (FAQs)

What is the downside of a home equity loan?

One downside is that it’s a secured loan, which means your current property is at risk if you can’t meet the monthly repayments. If property prices drop, you might also face negative equity where your loan exceeds your home’s market value.

What is the monthly payment on a $100,000 home equity loan?

The exact monthly repayments depend on the interest rate and loan term, but for a 6% rate over 15 years, it’s roughly $843 a month. You can use an equity calculator to estimate the repayment amount for your circumstances.

What is the catch to a home equity loan?

While you can access additional funds, you’re taking on more outstanding debts, which could strain your budget if you’re not careful. It’s crucial to seek independent advice or financial advice to make sure the loan fits your situation.

How to get equity out of your home without refinancing in Australia?

A home equity loan is a popular way to access equity over time without replacing your current mortgage. It lets you borrow against your home’s value while keeping your existing loan and mortgage repayments in place.

Which bank is best for a home equity loan in Australia?

There’s no single best bank; it depends on your credit history, property value, and personal needs. Working with an experienced broker can help you compare lenders, including options with or without Lenders Mortgage Insurance.

What are three ways to use home equity?

You could renovate your home, pay down outstanding balance on high-interest debts, or use the additional funds for an investment property purchase. Each option uses your equity over time to build more wealth or reduce financial stress.

What are the ways to build equity?

You can make extra home loan repayments, wait for property prices to rise, or boost your home’s value through improvements. Building equity slowly and steadily helps strengthen your financial position and borrowing options in the future.

Final Thoughts

Your home equity is simply the difference between your property’s current value and your outstanding mortgage balance. 

Whether you’re considering a home equity loan or exploring different home loans, making the right choice can help you achieve your goals of renovating, paying off debts, or even investing in a second property. 

At Mortgage Brokers Northern Beaches, we’re based in North Sydney and work with clients all over Sydney, including the Northern Beaches. We offer a free consultation to chat about your plans and help you find the best loan for your needs.

Call us on 0403 316 686 or visit mortgagebrokersnorthernbeaches.com.au to get started today. Let’s put your home’s value to work!