Smart ways to refinance and access equity for business

Refinancing to Access Equity: How the Process Works

Refinancing to access equity means replacing your current home loan with a new one that has a higher loan amount, allowing you to withdraw the difference as cash. The lender reassesses your property value and lending capacity, then approves a loan amount that reflects both your remaining debt and the additional funds you need.

Consider a Bundoora homeowner who purchased a three-bedroom brick veneer property several years ago for $550,000 with a 20% deposit. The current loan balance sits at $380,000, but the property has increased in value. A recent valuation shows the home is now worth $680,000, creating $300,000 in equity. If the owner wanted to access $80,000 to expand their landscaping business by purchasing equipment and hiring staff, they could refinance to a loan amount of $460,000. The lender would reassess the application based on the updated property value and confirm the owner can service the higher repayments. Once approved, $80,000 is released at settlement, and the new loan structure begins.

The owner in this scenario would move from 68% loan-to-value ratio (LVR) to approximately 68% after accessing the equity, keeping them within standard lending criteria without requiring lenders mortgage insurance. The additional $80,000 is treated as part of the overall mortgage debt, meaning it accrues interest at the home loan rate rather than a higher business loan rate.

Why Business Owners Choose This Over Commercial Finance

Borrowing against your home typically provides access to lower interest rates than commercial business loans or unsecured finance. A home loan rate might sit several percentage points below what a lender would charge for an unsecured business loan, which translates to lower monthly repayments and reduced total interest cost over the life of the borrowing.

Bundoora's residential market, with its proximity to La Trobe University and Polaris Town Centre, tends to hold stable valuations, making it easier for lenders to assess equity positions. Properties in established pockets near Grimshaw Street or around Bundoora Park often receive favourable valuations due to land size and consistent demand from families and investors.

Using residential equity also consolidates your debt into a single facility. Instead of managing separate repayments for a business loan, an overdraft, and your mortgage, you have one loan with one repayment schedule. This approach can improve cashflow management, particularly during periods when business income fluctuates.

What Lenders Assess When You Apply

Lenders evaluate both the security (your property) and your ability to service the higher loan amount. They will order a property valuation to confirm current market value, review your income sources, and assess your existing debts and expenses. If you operate a business, lenders typically require two years of financial statements or tax returns to verify consistent income.

Your serviceability calculation includes the proposed new loan amount, any other debts, and a buffer rate above the actual interest rate. Lenders apply this buffer to ensure you can still afford repayments if rates increase. If your business income has fluctuated significantly or if you've recently become self-employed, this can affect how much equity you can access.

Lenders also consider the purpose of the funds. While they don't typically restrict how you use equity released from a refinance on your owner-occupied property, they do assess risk differently depending on whether the funds are for business use, investment, or personal purposes. Transparency during the application improves the likelihood of approval at the loan amount you need.

How Much Equity You Can Access Without Triggering Mortgage Insurance

Most lenders will allow you to borrow up to 80% of your property's current value without requiring lenders mortgage insurance. If your property is valued at $680,000, 80% equates to $544,000. If your current loan balance is $380,000, you could access up to $164,000 in equity while staying under the 80% threshold.

Borrowing above 80% is possible, but it adds mortgage insurance to the cost, which can range from a few thousand dollars to over $20,000 depending on the loan size and LVR. For business purposes, most owners prefer to stay within the 80% limit to avoid this additional expense and keep ongoing costs down.

If you're planning to access equity for business use, speak with a broker who can run a borrowing capacity assessment before you commit to a specific funding amount. This helps you understand how much you can access while maintaining a comfortable repayment level and avoiding unnecessary insurance costs.

The Application Timeline and What to Prepare

The refinance application process typically takes three to six weeks from initial submission to settlement, depending on how quickly you provide documentation and how long the property valuation takes. You'll need to supply proof of income, recent payslips or tax returns, details of existing debts, and identification documents.

If you're self-employed or run a business, lenders usually require two years of tax returns and financial statements prepared by an accountant. If your business structure involves a company or trust, you may also need to provide business bank statements and details of the entity's financials.

Once the lender orders a valuation, it can take one to two weeks for the valuer to inspect the property and submit their report. If the valuation comes in lower than expected, it may reduce the amount of equity you can access. In some cases, you can request a second valuation if you believe the first was inaccurate, though this adds time and cost to the process.

Fixed or Variable Rate When Accessing Equity

When refinancing to access equity, you'll need to choose between a fixed rate, a variable rate, or a split structure. A variable rate offers flexibility, allowing you to make extra repayments or redraw funds without penalty. This can be useful if you plan to repay the equity portion quickly as your business generates revenue.

A fixed rate locks in your interest rate for a set period, typically one to five years, which provides repayment certainty. However, fixed loans often come with restrictions on extra repayments and may charge break fees if you exit early. If your fixed rate period is ending on your current loan, refinancing gives you an opportunity to reassess your rate structure based on your current needs.

A split loan divides your borrowing between fixed and variable portions, offering some stability while retaining access to flexible features. Many business owners prefer this structure because it balances predictable repayments with the ability to make extra repayments on the variable portion as cashflow allows.

Tax Implications of Using Home Equity for Business

The interest you pay on funds borrowed for business purposes is typically tax-deductible, but the portion of your loan that relates to your home remains non-deductible. To claim the deduction, you need to keep the business portion of your loan separate or clearly identifiable in your loan structure.

Many brokers recommend setting up a split loan where one portion covers your home and another covers the equity accessed for business. This separation makes it easier to track deductible interest at tax time and simplifies reporting for your accountant. If you blend the funds into a single loan without separation, it becomes difficult to prove which portion of the interest relates to business use.

Speak with your accountant before finalising your loan structure to confirm how to set up the loan for optimal tax treatment. Lenders can structure the loan in different ways, but your accountant will advise on the approach that aligns with Australian Taxation Office requirements and your business structure.

When Refinancing for Equity Makes Sense and When It Doesn't

Refinancing to access equity works when your property has increased in value, your income can support the higher repayments, and you have a clear plan for how the funds will generate return or growth in your business. It's particularly useful when you need a substantial amount of capital and want to avoid higher-rate business loans or diluting ownership by bringing in investors.

It's less suitable if your property hasn't increased in value since purchase, if your business income is inconsistent or difficult to verify, or if you're already carrying high levels of debt. If you're uncertain about your ability to service a larger loan, accessing equity adds risk to both your business and your home.

A loan health check before you apply can clarify whether refinancing is the right move based on your current financial position, property value, and business goals. This review considers your interest rate, loan features, and whether your current lender would offer additional funds without needing to refinance elsewhere.

Call one of our team or book an appointment at a time that works for you to discuss whether refinancing to access equity aligns with your business plans and property situation in Bundoora.

Frequently Asked Questions