Using home equity to renovate or invest

Work out your usable equity

Lenders look at the loan-to-value ratio (LVR): the loan as a share of the property's value. The formula for usable equity is:

usable equity = property value times maximum LVR, minus current loan

A worked example. These are round numbers for illustration, not a typical home, a valuation or a lender's policy:

Your lender sets its own maximum LVR, and it can differ by purpose, loan size and property type. The lender will also use its own valuation, which may not match an agent's estimate or what you paid. For the basics of LVR and why 80% matters, see what is LVR. If borrowing pushes you above 80%, ask whether lenders mortgage insurance applies: lenders mortgage insurance explains it.

Three ways to access equity

A separate account for each purpose keeps records clear: money for renovations in one, money for an investment in another. It also makes it easier to see what you owe on each part. See split home loans for how splitting works. If you have a fixed rate, ask the lender what a top-up or early repayment would trigger before you start. What happens when your fixed rate expires covers the end of a fixed term.

What it costs: each $100,000

RateSonar's arithmetic, with the rate held constant: at the middle advertised standard variable owner-occupier rate, 6.74% (as at 2 Nov 2026), each $100,000 you add costs about $562 a month, or $6,740 a year, in interest alone. That is interest only; repaying principal over a long term costs more each month.

Treat this as a guide. The rate you are offered depends on the lender, the purpose of the loan, your LVR and your circumstances, and investment loans often carry a different rate. See investor and owner-occupier rates and the home loan rate board for advertised rates. Advertised rates are not what a customer will be charged.

Valuation and serviceability

Two checks decide how much you can borrow, beyond the LVR.

• Valuation. The lender decides the value it will lend against. If its figure is lower than you expected, your usable equity shrinks. Renovation plans may be valued on the expected finished result, or on the current state; ask which applies.
• Serviceability. The lender tests whether you can afford the larger repayments, often at a higher rate than the one you will pay. See how lenders assess serviceability. Having equity does not mean you can afford the extra loan.

Renovating versus investing

For a renovation, the debt sits against an asset you live in. The risk is mostly about cost blowouts and whether the work adds the value you expect. Get quotes before you borrow, and ask the lender whether a construction-style loan with staged payments is a better fit: construction loans and progress payments.

Borrowing against your home to invest is a different level of risk. Moneysmart's page on borrowing to invest says:

• some lenders let you borrow to invest and use your home as security, and if you do this you could lose your home if the investment turns bad;
• you still have to repay the investment loan and interest even if the investment falls in value;
• on a variable rate loan, the interest rate and payments can increase;
• borrowing only makes sense if the return after tax is greater than all the costs of the investment and the loan;
• it suggests borrowing less than the maximum the lender offers.

On tax, Moneysmart says there may be tax deductions on interest payments, tells you to check whether you would be positively or negatively geared, and notes that the government announced changes to negative gearing in the 2026 Federal Budget and to check the ATO for details. Whether interest is deductible depends on what the borrowed money is used for, and the rules change. See the ATO for general guidance and ask a registered tax professional about your situation. This guide is general information, not tax or financial advice.

Questions to ask before you borrow

• What is the maximum LVR for this purpose, and does the lender use its own valuation?
• Will the new money be a separate loan or part of my current one, and what rate applies to each?
• What fees apply: application, valuation, top-up, and any early repayment or break costs?
• What do repayments look like if the rate rises by 3 percentage points? See the buffer idea in the serviceability buffer.
• If I cannot cover repayments, what happens? See struggling with repayments.