Top tips to calculate your home equity when refinancing

Your home equity is the difference between what your property is worth now and what you still owe on the mortgage.

If your property is valued at $650,000 and you owe $420,000, you have $230,000 in equity. That figure matters when you refinance because lenders use it to work out how much you can access, whether for equipment upgrades, a deposit on your next property, or consolidating debt from utes and machinery into a lower rate. Get the calculation wrong and you'll either overestimate what you can pull out or underestimate what you actually have sitting there.

Why your equity calculation changes when you refinance

Your equity shifts every time you make a repayment or when property values move. The number you had two years ago when you last looked at your loan statement is not the number you have now.

Consider a landscaper who bought in late 2021 with a $500,000 loan on a property valued at $580,000. Fast forward to now and they've paid the loan down to $465,000. If the property has increased in value to $680,000, the equity has gone from $80,000 to $215,000. That difference changes what refinancing can do. It might mean you can now access equity to buy a second property or fund a business expansion without needing a separate business loan at a higher rate.

Lenders will order a fresh valuation when you refinance, and that figure is what they use to calculate equity, not what you think the place is worth or what a real estate agent tells you over the phone.

How lenders calculate usable equity

Equity on paper and usable equity are not the same thing. Lenders will let you borrow against your equity, but only up to a certain percentage of the property's value.

Most lenders cap refinancing at 80% of the property value without charging Lenders Mortgage Insurance. If your property is worth $700,000, that means the maximum loan amount is $560,000. If you currently owe $380,000, your usable equity is $180,000. Go above that 80% threshold and you'll pay LMI, which can add thousands to the cost and often makes the refinance pointless unless the rate drop or debt consolidation savings outweigh it.

Some lenders will go to 90% or even 95% for specific purposes, but those scenarios usually involve higher rates or additional costs. For most landscapers refinancing to fund equipment or consolidate debt, staying under 80% is the target.

The valuation gap that catches self-employed borrowers

The bank's valuer might come back with a figure lower than you expected, and that shrinks your equity overnight.

In our experience, this happens more often in regional areas or on larger blocks where landscapers live and run part of their business from the same property. A 2-acre block with sheds, hardstand, and equipment storage might be worth more to you than to a standard residential buyer, and valuers price accordingly. If you were banking on a $750,000 valuation and the bank's valuer says $690,000, you've just lost $60,000 in usable equity before you even start the refinance application.

This is where having a broker who works with valuers regularly makes a difference. We can often flag whether a property is likely to come in under expectations and suggest ordering a pre-valuation or choosing a lender whose valuation panel is more familiar with rural-residential or semi-commercial setups.

Calculating equity when you want to pull cash out

If you're refinancing to access cash, the calculation needs to account for what you're taking out plus what you still owe.

Say your property is worth $720,000 and you owe $410,000. You want to pull out $80,000 to buy a second work ute and some machinery. Your new loan amount would be $490,000, which is 68% of the property value. That sits comfortably under the 80% threshold, so the refinance works without LMI. You'd be accessing equity while keeping your loan-to-value ratio in a range that keeps your interest rate competitive.

If the same borrower wanted to pull out $150,000 instead, the new loan would be $560,000, which is exactly 78% and still under the cap, but it leaves less buffer. One valuation coming in $20,000 lower and suddenly you're over 80% or the lender won't approve the full amount.

How paying down debt before refinancing increases your equity

If you're carrying personal loans, car finance, or credit card debt, paying those down before you refinance can increase the equity you can access.

Lenders calculate your borrowing capacity based on your income minus your existing debts. If you're paying $1,200 a month across a ute loan and a credit card, that reduces how much they'll lend you even if your equity position looks solid. Clear $15,000 of debt before refinancing and you've freed up serviceability, which can mean the difference between accessing $100,000 in equity or $130,000.

Some landscapers will actually use the refinance itself to clear that debt by consolidating into the mortgage, which can work if the interest rate saving outweighs the cost of rolling short-term debt into a 30-year loan. The equity calculation stays the same, but the cashflow outcome changes.

When your equity is enough to avoid LMI on the next purchase

If you're refinancing to pull equity for a deposit on an investment property, the calculation needs to factor in not just what you're taking out but what that does to your borrowing capacity for the next loan.

A landscaper with $200,000 in usable equity might pull out $120,000 to use as a deposit on a $600,000 investment property. That $120,000 represents a 20% deposit, which means the investment loan avoids LMI. But the refinance increases the debt on the existing property, which reduces serviceability for the new loan. If the numbers are tight, you might need to pull out less equity and use a guarantor or accept a smaller deposit and pay LMI on the investment loan instead.

This is where running the numbers properly before refinancing saves months of back and forth. We regularly see landscapers who refinance first and then realise they can't service the investment loan because they've maxed out their equity without checking the next step.

Call one of our team or book an appointment at a time that works for you. We'll calculate your usable equity based on your current loan, property value, and what you're trying to achieve, then work out whether refinancing gets you there or whether another structure makes more sense.

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