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When you pull equity out of your house, you’re not just getting cash-you’re changing the structure of your biggest financial asset. It sounds simple: you borrow against the value you’ve built up in your home. But what actually happens next? The answer depends on how you do it, where you live, and what your long-term goals are. In Australia, especially in places like Brisbane where property values have climbed steadily over the last decade, this move is becoming more common. But it’s not without risks.
How Equity Works in Your Home
Equity is the part of your home you truly own. If your house is worth $800,000 and you still owe $400,000 on your mortgage, your equity is $400,000. That’s not cash in the bank-it’s locked up in bricks and mortar. But lenders let you unlock it. You can borrow against that $400,000, either by refinancing your existing loan or taking out a new one.
Most people do this through a cash-out refinance. You replace your current mortgage with a new one for more than you owe. Say you owe $400,000 but refinance for $600,000. You pay off the old loan and get the extra $200,000 in cash. That’s equity pulled out.
Another option is a home equity loan-a second mortgage. You keep your original loan and add another one on top. Or you might use a reverse mortgage, especially if you’re over 65. That’s different: you don’t make monthly payments, but the loan grows over time and must be repaid when you sell, move out, or pass away.
Why People Pull Equity Out
People do this for many reasons. Some use it to pay off high-interest credit card debt. Others fund home renovations-like adding a new kitchen or extending the living area. In Brisbane, it’s common to see homeowners use equity to build granny flats, which can then be rented out for extra income.
Some use it to pay for education, medical bills, or even to buy an investment property. A friend of mine in Ipswich pulled $150,000 out last year to buy a unit near the university. He rents it to students and now makes $500 a week in rent-more than his extra loan payment.
But not everyone has a clear plan. I’ve seen too many cases where people pull equity just because they can. They buy a new car, go on a holiday, or spend it on gadgets. That’s risky. You’re turning unsecured debt (like credit cards) into secured debt (your home). If things go wrong, you could lose your house.
The Real Cost of Pulling Equity
It’s not just about the cash you get. You’re also adding to your debt and extending your repayment period. Let’s say you originally had a 20-year mortgage. You pull out $100,000 in equity and refinance. Now your loan term resets to 30 years. That means you’ll pay interest for another 10 years-even if you were halfway through paying off your original loan.
Interest rates matter too. If your original rate was 4.5% and the new one is 6.2%, you’re paying more even if your monthly payment stays the same. And fees add up. Lenders charge application fees, valuation fees, legal fees, and sometimes mortgage insurance. In Australia, those can easily hit $3,000-$5,000.
Also, your loan-to-value ratio (LVR) increases. If you had 50% equity before, and now you’re borrowing 75% of your home’s value, you’re closer to the danger zone. Lenders get nervous above 80% LVR. You might need to pay Lender’s Mortgage Insurance (LMI), which can cost thousands.
What Happens If Property Values Drop?
This is the hidden risk most people ignore. Property markets don’t always go up. In 2022, Brisbane saw a 5% dip after years of growth. If you pulled out $200,000 in equity when your home was worth $900,000, and now it’s only worth $800,000, you’re suddenly upside down. You owe more than your house is worth.
That doesn’t mean you’ll lose your home overnight. But it makes it harder to sell, refinance, or move. If you need to relocate for work, you might be stuck. And if interest rates rise again, your repayments could become unmanageable.
One client I spoke with in Fortitude Valley pulled equity to fund a business idea. The business failed. The house value dropped. He’s now paying more each month and has no safety net. He didn’t plan for the worst-case scenario.
Reverse Mortgages: A Different Kind of Equity Release
If you’re over 65 and don’t want to make monthly payments, a reverse mortgage might be an option. You get cash either as a lump sum, regular payments, or a line of credit. The loan doesn’t need to be repaid until you leave the home.
But here’s the catch: interest compounds. If you take out $100,000 at 7% per year, after 10 years, you owe around $196,000. After 20 years, it’s over $386,000. That’s more than the original value of many homes in regional Queensland.
Also, you still need to pay property taxes, insurance, and maintenance. If you fall behind, the lender can call the loan due. And when you pass away, your heirs may have to sell the house to repay the debt. That’s not always what families expect.
ASIC (the Australian Securities and Investments Commission) warns that reverse mortgages are not for everyone. They’re designed for people who plan to stay in their home for life and have no other assets to rely on.
Alternatives to Pulling Equity
Before you pull equity, ask: is there another way?
- Debt consolidation loan: If you’re drowning in credit card debt, a personal loan at 10% might be cheaper than a mortgage at 6% with added risk.
- Downsizing: Sell your big family home, move to a smaller one, and pocket the difference. No new debt, no interest.
- Rent out part of your home: A granny flat, spare room, or even a garage conversion can bring in $300-$800 a month tax-free under Australia’s rent-a-room scheme.
- Use savings: If you’ve got cash in super or an offset account, consider using that first. It’s cheaper than borrowing.
One woman in Toowoomba used $80,000 from her super to pay for her daughter’s university fees. She didn’t touch her home equity. Five years later, her home value rose 20%, and she still had her full mortgage balance intact.
When Pulling Equity Makes Sense
It’s not always a bad idea. Here are three situations where it works:
- You’re doing high-value home improvements that increase your property value by more than the cost. Adding a bathroom or solar panels often pays for itself.
- You’re consolidating expensive debt (like credit cards at 20%) into a lower-rate mortgage. You save money and simplify payments.
- You’re buying an investment property and have strong rental income to cover the extra loan. The rental income offsets the new debt.
But even then, you need a plan. How will you repay it? What happens if you lose your job? What if interest rates jump again? Always stress-test your numbers.
What to Do Before You Pull Equity
Don’t rush. Here’s a checklist:
- Check your current loan balance and home value. Use free tools like CoreLogic or RP Data.
- Calculate your equity: home value minus what you owe.
- Know your LVR. If it’s above 80%, expect LMI fees.
- Compare rates from at least three lenders. Don’t just go with your current bank.
- Ask about fees: application, valuation, legal, discharge.
- Run the numbers: what will your new monthly payment be? What’s the total cost over 30 years?
- Get independent financial advice. A fee-for-service planner (not a commission-based broker) can help you see the full picture.
And always ask: What’s my exit strategy? If you pull equity to fix up your home, what’s your plan if you need to sell in five years? If you’re using it to fund retirement, how will you cover your living costs later?
Final Thought: Your Home Isn’t an ATM
Too many people treat their home like a cash machine. But it’s your shelter, your security, your legacy. Pulling equity out isn’t free money-it’s borrowed money with strings attached. The bank doesn’t care if you’re going on holiday or fixing up your kitchen. They care about getting paid.
If you’re considering this move, do it with eyes wide open. Know the costs. Know the risks. Know what happens if things go wrong. And if you’re not sure? Wait. Save. Plan. Your future self will thank you.
Can I pull equity out of my house if I’m still paying off my mortgage?
Yes, you can. Most people who pull equity still have an active mortgage. The key is having enough equity-typically at least 20% of your home’s value. Lenders will refinance your existing loan into a larger one, giving you the difference in cash. But your loan-to-value ratio (LVR) will increase, which may trigger additional fees like Lender’s Mortgage Insurance (LMI) if it goes above 80%.
Does pulling equity affect my credit score?
Pulling equity can temporarily lower your credit score because it increases your total debt and may involve a hard credit check. But if you make all payments on time and don’t take on other new debt, your score should recover within a few months. The bigger risk isn’t your credit score-it’s overextending yourself financially. High debt levels can make it harder to get approved for future loans.
What’s the difference between a home equity loan and a cash-out refinance?
A home equity loan is a second mortgage. You keep your original mortgage and take out a separate loan using your home as security. You’ll have two monthly payments. A cash-out refinance replaces your original mortgage with a new, larger one. You get the difference in cash and only have one monthly payment. Cash-out refinances often have lower interest rates but come with higher upfront fees.
Can I pull equity if I’m retired?
Yes, but options are limited. Traditional cash-out refinances require proof of income, which many retirees don’t have. A reverse mortgage is the most common choice for retirees. It lets you access equity without monthly repayments, but interest compounds over time and can quickly reduce the amount left for your heirs. It’s not a get-rich-quick scheme-it’s a way to stretch your retirement savings.
Are there tax implications when I pull equity out of my house?
In Australia, you don’t pay tax on the cash you receive from equity release. However, if you use the money to buy an investment property, the interest on that loan becomes tax-deductible. If you use it for personal expenses-like a holiday or a car-you can’t claim any tax deductions. The tax benefit only applies when the borrowed money is used to generate income.
What happens to my equity if I sell my house later?
When you sell, you repay the full amount you borrowed-including any interest and fees-before you pocket any profit. If you pulled out $150,000 in equity and your home sells for $900,000, you’ll pay off the new mortgage balance (say $700,000), and the remaining $200,000 is yours. But if your home’s value dropped and you owe $800,000 on a $750,000 house, you’ll need to bring cash to the sale to cover the shortfall.
Next Steps If You’re Considering Equity Release
Start by checking your home’s current value. Use free tools like CoreLogic or RP Data. Then calculate your equity: subtract your remaining mortgage balance from the estimated value.
If you have at least 20% equity, contact a mortgage broker who works with multiple lenders-not just your bank. Ask for a comparison of cash-out refinance options, home equity loans, and reverse mortgages (if you’re over 65).
Run the numbers. Use an online mortgage calculator to see how your repayments change. Don’t just look at the monthly amount-look at the total cost over the life of the loan.
Finally, talk to a fee-for-service financial planner. They don’t earn commission from the loan. They’ll help you decide if this move makes sense for your long-term goals-or if there’s a better way to get the money you need.
