What Is Equity?
What is equity in a property, and how much of it can I actually use?
By Andrew, franklenn FINANCE 6 min readUpdated 3 November 2026
The short answer
Equity is the difference between what your property is worth and what you still owe on it. If your home is valued at $865,000 and your loan balance is $412,300, you have $452,700 in equity. You usually can't borrow against all of it, though. Most lenders will lend up to 80% of the property's value without lenders mortgage insurance (LMI), so your usable equity is that 80% figure minus your current loan, and you still need to pass the lender's serviceability test to access it.
Detailed explanation
Equity in plain English
Think of equity as the part of the property that is genuinely yours. The bank's share is your loan balance; everything above that is your share. It grows in two ways: when you pay down the loan, and when the property rises in value. It can also shrink if values fall or if you borrow more against the property.
Equity only exists on paper until you sell or borrow against it. That matters, because the figure you have in your head and the figure a lender works with are often different.
A simple way to keep track is to check your loan balance every few months and compare it with recent sales of similar properties nearby. You won't get an exact figure, but you'll have a sense of whether your equity is growing and roughly how much room you might have when it's time to make a move.
Total equity versus usable equity
Total equity is simply value minus debt. Usable equity is the portion a lender is prepared to let you borrow against. Most lenders cap lending at 80% of the property's value before LMI applies. LMI is a one-off insurance premium that protects the lender, not you, if you default.
So the quick formula is: (property value x 80%) minus current loan balance = usable equity. You can sometimes go above 80% by paying LMI, but that adds cost and is a decision worth thinking through carefully, especially for an investment purchase.
- Total equity: value minus loan balance.
- Usable equity: 80% of value minus loan balance (a common lender threshold).
- Accessible equity: the usable amount you can also afford to repay, based on your income and expenses.
Whose valuation counts
When you ask to borrow against your equity, the lender orders its own valuation. That valuer looks at recent comparable sales and the condition of your property, and the number is often more conservative than an online estimate or a real estate agent's appraisal. Agents are estimating what a motivated buyer might pay; valuers are estimating what the bank could safely rely on.
As a broker we can often order upfront valuations with several lenders before you apply, which gives a clearer picture of where you stand. We can't guarantee any figure, but it beats guessing.
Equity is not the same as borrowing power
This is the part that trips people up. Having $280,000 of usable equity does not mean you can borrow $280,000. The lender still has to be satisfied you can repay the new, larger loan. That is called serviceability, and it depends on your income, living expenses, other debts and the lender's assessment rate.
In our own experience owning investment property in NSW and QLD, equity tends to open the door and serviceability decides how far through it you can walk. Plan around both.
How to grow and protect your equity
You can't control the property market, but you can control your side of the ledger. Extra repayments, an offset account that reduces the interest you pay, and sensible renovations that add genuine value all help. Avoid topping up your loan for lifestyle spending, which quietly eats equity without building anything.
- Make extra repayments or keep savings in an offset account.
- Keep the property well maintained, since condition affects valuations.
- Review your loan regularly so a higher rate isn't slowing your progress.
Worked example
Working out equity on a family home
Here is an illustrative example. A couple's home has been valued by the lender at $865,000 and they owe $412,300 on their home loan.
| Lender valuation | $865,000 |
| Current loan balance | $412,300 |
| Total equity ($865,000 - $412,300) | $452,700 |
| 80% of valuation ($865,000 x 0.80) | $692,000 |
| Usable equity ($692,000 - $412,300) | $279,700 |
| Current loan-to-value ratio (LVR) | 47.7% |
On paper they have $452,700 in equity, but the amount they could typically borrow against without LMI is $279,700, and only if their income and expenses support the larger loan. These numbers are illustrative; your figures depend on a real valuation and the lender's policy.
Illustrative only. Figures are examples, not a quote or a recommendation.
Common mistakes
- Using an online estimate or agent appraisal as if it were the bank's valuation.
- Assuming all of your equity is available to borrow, rather than the portion up to about 80% of value.
- Forgetting that you still need to pass serviceability on the larger total loan.
- Using equity for spending that doesn't build long-term wealth.
- Leaving no buffer, so a small drop in values pushes your LVR higher than you planned.
Frequently asked questions
Next steps
Talk to franklenn FINANCE
If you'd like to know what your usable equity looks like and what you could realistically do with it, book a free discovery call with franklenn FINANCE and we'll walk through your numbers with you.
This guide is general information only and does not consider your objectives, financial situation or needs. It is not financial, tax or legal advice. Lender policies, rates and government schemes change. Please speak with us, and with your accountant or solicitor where relevant, before acting.