Refinancing to Access Equity: The Pros and Cons

Refinancing your home loan to access equity gives you a way to release funds for business purposes without selling your property or taking on a separate commercial loan.

The decision hinges on whether the accessible equity justifies the refinance process, how the lender views your business income, and whether you're comfortable with the increased loan amount secured against your home. For many business owners, it's one of the most cost-effective ways to inject capital where it's needed, but it's not without risk.

How Equity Release Through Refinancing Works

When you refinance to access equity, you're increasing your loan amount based on the current value of your property. Most lenders will allow you to borrow up to 80% of your property's value without requiring lenders mortgage insurance, though some will go higher depending on your circumstances. The difference between what you owe and what you can borrow becomes accessible cash.

Consider a business owner in Queensland who purchased a property several years ago. The original loan was $400,000, and the current balance sits at $320,000. The property is now valued at $550,000. At 80% of that value, the owner could borrow up to $440,000. After paying out the existing loan, that leaves $120,000 available to draw down for business use. The process involves a property valuation, a loan review, and a formal refinance application with either the current lender or a new one.

Why Business Owners Choose This Over Commercial Lending

Interest rates on home loans sit well below most business loan products. A variable interest rate on a residential mortgage will typically be lower than what you'd pay on an unsecured business loan or line of credit. This difference can amount to thousands of dollars in interest over the life of the loan, particularly if you're accessing a substantial amount.

Securing funds against your home also means you avoid the stricter serviceability requirements and shorter loan terms that often come with commercial finance. Lenders assess your ability to service the increased loan amount, but the criteria can be more forgiving than what's applied to standalone business lending. Cashflow improves when repayments are spread over a longer term, and you can often structure the loan with features like an offset account or redraw facility to manage the funds as needed.

The Risks of Securing Business Debt Against Your Home

You're increasing the debt secured against your property, which means if the business encounters trouble and you can't meet repayments, your home is at risk. This isn't a hypothetical concern. Business income can fluctuate, and lenders will scrutinise your ability to service the higher loan amount based on both your personal and business financial position.

In our experience, lenders treat business income differently depending on how it's structured. Sole traders and partnerships may need to provide two years of tax returns and financials, and the lender will apply a loading or discount to that income when calculating serviceability. Company directors drawing a wage have a more straightforward assessment, but the business still needs to demonstrate stability. If your business is new or your income has been inconsistent, accessing equity through a refinance can be difficult, regardless of how much equity you hold.

When Refinancing to Access Equity Makes Sense

This approach works when you have a clear plan for the funds, a stable income that supports the increased repayments, and sufficient equity in your property to avoid paying lenders mortgage insurance. It's particularly useful for business owners looking to purchase equipment, expand operations, or consolidate higher-interest debts into the mortgage.

We regularly see this used by self-employed clients who want to avoid the documentation burden and cost of commercial lending. Releasing equity through a home loan refinance gives them access to capital at a lower rate, with the flexibility to draw down only what's needed. If your fixed rate period is ending, it's also an opportunity to review your loan, switch to a variable or fixed interest rate that suits your current situation, and access equity in the same transaction.

What Happens During the Refinance Process

The lender will assess your current loan amount, the property valuation, your income, and your existing debts. If you're self-employed, expect to provide recent tax returns, profit and loss statements, and business activity statements. The lender will calculate how much equity you can access and whether your income supports the higher repayments.

Once approved, the new loan pays out your existing mortgage, and the remaining funds are released to you, usually into a nominated account or offset facility. Settlement typically takes a few weeks, depending on the lender and whether you're switching to a new one. Some lenders will allow you to stay with them and adjust your loan without a full refinance application, though this depends on your current loan structure and the amount you're looking to access.

Structuring the Loan to Suit Business and Personal Needs

How you structure the increased loan amount matters. Some business owners split the loan, keeping the original amount on one rate and the additional equity drawdown on another. This can make tax reporting clearer if you're claiming interest on the business portion, and it gives you flexibility to pay down the business debt faster without affecting the rest of the loan.

Another option is to link the additional funds to an offset account, so you're only paying interest on what you actually use. If you're drawing down $100,000 but only need $60,000 immediately, you can leave $40,000 in the offset, reducing the interest charged while keeping the funds accessible. A redraw facility works similarly, though the terms vary by lender and some charge fees for accessing redraw funds.

Tax Considerations When Using Equity for Business

Interest on the portion of your loan used for business purposes is usually tax-deductible, but you need to keep the funds separate and maintain clear records. Mixing personal and business use of the funds complicates the deduction and can create problems if the Australian Taxation Office asks for evidence.

Speaking with an accountant before you refinance helps you structure the loan correctly from the start. Some clients set up a separate split or sub-account for the business funds, making it straightforward to track interest and claim the deduction without crossover.

Alternatives to Refinancing for Equity Access

If refinancing doesn't suit your circumstances, other options include a stand-alone equity loan, a business loan, or asset finance if you're purchasing specific equipment. Each has different cost structures, approval criteria, and implications for your cashflow. A second mortgage or line of credit might work if you want to leave your existing home loan untouched, though interest rates are typically higher and loan amounts more limited.

For business owners with multiple properties, accessing equity from an investment property rather than your home can reduce personal risk, though lenders will still assess your overall debt position and serviceability.

If you're weighing up whether refinancing to access equity suits your situation, or you want to understand how much you could release based on your current property value and loan balance, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions