Gross equity is the property value less what you owe. Usable equity is smaller, because a lender will not let you borrow up to the full value.
This works out both: what you have on paper, and what could actually be released while staying inside a target LVR.
Works out gross equity in a property, and how much could be released while staying within a loan-to-value ratio you choose.
Target LVR
The loan-to-value ratio you want to stay within after releasing equity. Eighty percent is the usual choice, because it is the point at which lenders mortgage insurance starts.
Gross equity is the difference between what the property is worth and what you owe. It is the figure people quote and it is not the figure a lender will act on.
Usable equity is the target LVR applied to the property value, less the existing loan. At an 80% target on a property worth a million with $400,000 owing, gross equity is $600,000 and usable equity is $400,000 — a third less.
Usable equity is what could fund a deposit on another property, a renovation, or a consolidation. It is still borrowing, secured against your home, and it is repaid with interest.
Every figure below is computed by the same calculator on this page, from the inputs described. Nothing here is typed in by hand, so an example cannot disagree with the tool.
Compare gross equity against usable equity. The gap between them is the 20% buffer the lender keeps, and it is the number people are surprised by.
A more conservative target releases less. It may also secure a better interest rate, since many lenders price their sharpest products below 70%.
Gross equity is the property value less the loan balance.
Usable equity is the property value multiplied by the target LVR, less the loan balance. Where that is negative — the loan already exceeds the target — there is no usable equity, and the calculator reports that rather than a negative amount that reads like a credit.
The valuation is accepted
A release of equity requires a fresh valuation, and lenders are frequently more conservative than owners are about what a property is worth.
Serviceability is separate
Having usable equity does not mean a lender will advance it. They will assess whether you can service the larger loan, which is a different test entirely.
Releasing equity is borrowing
It increases the loan secured against your home and the repayments on it. Using it as a deposit on an investment property means both properties carry the risk.
It does not model cross-collateralisation
Using one property’s equity to secure another creates a linked structure that is harder to unwind later. That is a structuring question worth advice on.
Works out the loan-to-value ratio: how much is borrowed as a percentage of what the property is worth.
Works out what is left after agent commission, marketing, legal fees and repaying the loan.
Compares your current loan with a refinance offer over the same remaining term, and shows how long the switching costs take to recover.
Works out gross and net rental yield on an investment property, allowing for vacancy and operating costs.
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