How to Access Equity in Your Property (And How the Banks Actually Think About It)
I get this question all the time:
“How do I get equity out of my property — and how does it actually work?”
It’s one of those topics that sounds complex, but once you understand how banks view risk, it starts to make a lot more sense. Let me walk you through it the same way I explain it to clients.
The 80/20 Rule Banks Live By
Lenders operate around a pretty firm “gold standard”:
80% loan
20% deposit or equity
That 20% buffer is their risk limiter. If your loan goes above 80% of the property’s value, the lender usually wants Lenders Mortgage Insurance (LMI) — not to protect you, but to protect them.
From the bank’s perspective, anything above 80% increases the risk that, if they ever had to sell the property at a loss, they wouldn’t fully recover the loan.
So How Do You Actually Create Equity?
This is the part that often gets skipped, but it’s crucial.
Equity doesn’t magically appear — it’s created in two very clear ways, and most people build it using a combination of both.
1. Paying Down Your Loan (The Slow, Predictable Way)
Every repayment you make reduces your loan balance.
As the debt goes down, and assuming the property value stays the same, your equity increases.
This is the boring but reliable path.
Over time, this can be accelerated by:
making extra repayments
using an offset account effectively
redirecting surplus cash flow toward the loan
This method is entirely within your control. It doesn’t rely on the market doing anything fancy, just consistency and time.
2. Property Value Increasing (The Market-Driven Way)
The second lever is capital growth.
If your property increases in value while your loan stays the same (or reduces), your equity position improves faster.
For example:
you buy at $600,000
your loan is $540,000 (90%)
the property grows to $700,000
suddenly your loan is closer to 77% LVR — without making any additional repayments
This is why location, supply, demand, and timing matter so much.
It’s also why some people reach the 80% threshold far quicker than expected, like the Perth client I mentioned earlier.
The Sweet Spot: When Both Work Together
The most powerful equity outcomes happen when:
you’re paying the loan down, and
the property value is increasing
That’s when equity can build surprisingly fast.
This is also why lifestyle decisions (where you buy, what you build, how long you hold) matter just as much as interest rates.
How People Get Into the Market Without a 20% Deposit
Let’s be honest, very few people have the luxury of saving a full 20% deposit these days. So most first home buyers get in using one of two pathways:
A family guarantor, or
A government-backed scheme such as the Home Guarantee Scheme (often with as little as a 5% deposit)
In both cases, the bank still ends up with its 20% security buffer:
With a guarantor, that security comes from a limited guarantee over a parent’s property
With the government scheme, the government effectively underwrites the shortfall
Different structures, same outcome for the lender.
Why This Matters When You Want to Use Your Equity
When clients ask about:
cashing out equity
refinancing to a better rate
buying an investment property
…the conversation always comes back to loan-to-value ratio (LVR).
That 80% LVR is the line in the sand.
Above it:
LMI usually applies
interest rates are often higher
lender choice becomes more limited
Below it:
more lenders
sharper pricing
more flexibility in how the loan is structured
This is why, in most cases, the first goal is simply getting the loan back to 80% LVR or lower.
Until then, your options aren’t gone, they’re just constrained.
When Going Above 80% Can Still Make Sense
There are situations where intentionally going above 80% can be the right move.
The most common one I see is when someone uses equity to fund a deposit for an investment property.
Yes:
you may pay LMI
the rate might be higher initially
But experienced or well-prepared investors aren’t focused on the next 12 months, they’re focused on the next 10–20 years.
They usually:
have strong confidence in the asset they’re buying
can comfortably manage the short-term cash flow
understand that property growth can naturally push the LVR back under 80% over time
In many cases, the rental income eventually surpasses repayments, while equity continues to build in the background.
That’s a very different mindset to someone refinancing purely to shave 0.10% off their rate.
A Real Example: Equity in Action
Recently, I worked with a client who played this long game well.
They:
saved just over a 5% deposit
built a home just outside Perth
were very intentional about balancing lifestyle and future financial goals
About 18 months later, we ordered a bank valuation.
The result?
the property had appreciated enough that they now had close to 30% equity
That unlocked options.
They refinanced, cashed out a portion of equity on a new 30-year term, and:
paid out their car debt
significantly improved their monthly cash flow
Importantly, they didn’t treat this as “free money”.
They’re using the improved cash flow to aggressively pay down debt and rebuild equity.
Same loan. Same property. Completely different position.
Refinancing Doesn’t Always Mean Changing Lenders
This is another misconception I see all the time.
Refinancing to a better rate doesn’t automatically mean moving banks.
In many cases:
your existing lender can reprice your loan
you avoid discharge and application costs
the process is faster and simpler
Sometimes switching lenders does make sense, especially if policy, features, or long-term strategy come into play.
But rate alone isn’t always the reason to jump.
This is why strategy matters more than just “what’s the cheapest rate today”.
The Big Takeaway
Equity isn’t something you magically “unlock” one day.
It’s the result of:
time
repayments
smart decisions
and understanding how banks assess risk
For most people, patience until that 80% LVR is reached opens the most doors.
For others, using equity earlier can be a deliberate and well-planned move.
The key is knowing which category you’re in, and structuring things so today’s decision doesn’t box you in tomorrow.
💬 Use the contact form, or book a meeting to see how understanding your property equity could open up new opportunities for you.
