Refinancing to access equity means increasing your loan amount to unlock value from your property.
When you refinance your home loan to access equity, the lender values your property, calculates how much you owe, and determines how much additional borrowing capacity you have. That difference can be released as cash for purposes like starting or expanding a business. The process involves replacing your existing mortgage with a new one at a higher loan amount, with the extra funds paid directly to you at settlement.
Consider a teaching assistant who bought a unit five years ago and has been paying down the mortgage while the property has increased in value. They now want to start a tutoring business but need around $40,000 for fit-out, resources, and working capital. Rather than applying for a separate business loan at a higher interest rate, they refinance their mortgage and draw out the equity. The funds arrive at settlement, the mortgage reflects the new loan amount, and they pay one rate on one loan.
How much equity can you actually access?
Most lenders allow you to borrow up to 80% of your property's current value without needing to pay lenders mortgage insurance. If your property is worth $500,000 and you owe $300,000, you could potentially borrow up to $400,000, giving you access to $100,000 in equity. Go beyond 80% and you'll trigger LMI, which adds cost and reduces the amount you can use for your business.
The equity calculation also depends on your income and existing debts. As a teaching assistant, your income is stable and verifiable, but lenders still assess whether you can service the larger loan amount alongside any other commitments. If you're planning to leave your role to run the business full-time, that changes the assessment entirely. Some lenders will accept projected business income if you can provide a solid business plan, but others won't lend without current employment income to support the application.
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What happens to your interest rate when you refinance for equity?
Your new loan will be assessed at current refinance interest rates, which may be higher or lower than what you're paying now. If you're coming off a fixed rate period that locked in a low rate a few years ago, the variable interest rate on your new loan will likely be higher. That means you're not just paying interest on the extra funds you've borrowed - your entire loan amount is now at the new rate.
In some situations, this still makes sense. A business loan from a bank or alternative lender might charge 8% to 12%, while a mortgage sits closer to 6%. Even if your mortgage rate increases slightly after refinancing, you're still paying less interest overall than if you'd taken out a separate business loan. The key is to compare the total cost of both options, not just focus on whether your mortgage rate has changed.
Structuring the loan to protect your business funds
Once the equity is released, you need a way to manage it without paying interest on funds you haven't used yet. An offset account lets you park the cash and offset it against your loan balance, so you're only paying interest on what you've actually spent. If you draw out $50,000 and keep $30,000 in the offset while you spend the other $20,000 on business expenses, you're only paying interest on $20,000 of the drawdown.
A redraw facility works differently. It allows you to withdraw extra repayments you've made, but it doesn't offset your interest in real time. If you need structured access to funds over several months as you build the business, an offset account gives you more control. Not all lenders offer offset on every loan product, so this needs to be part of the refinance application discussion upfront.
The refinance process when you're accessing equity
The lender orders a property valuation to confirm what your home is worth right now. If the valuation comes in lower than expected, your available equity shrinks and you may not be able to access the amount you planned for. This happens more often in areas where property values have plateaued or declined, or when the property has unique features that don't appeal to the valuer's comparable sales.
You'll also need to demonstrate what the funds will be used for. Most lenders want to see a business plan, especially if you're borrowing a significant amount. The plan doesn't need to be a 40-page document, but it should show projected income, expenses, and how the funds will be allocated. If the business is already operating and you're seeking growth capital, recent financials and tax returns will be required as part of the refinance application.
Tax treatment of equity borrowed for business purposes
When you borrow against your home to fund a business, the interest on that portion of the loan may be tax-deductible, while the interest on the portion used for your home is not. Keeping the funds in separate loan splits makes it easier to track which interest applies to which purpose. Your accountant will need clear records showing how much was borrowed, when, and what it was spent on.
If you mix personal and business expenses from the same drawdown, the deductibility becomes harder to prove. Set up the loan structure at the start so the business portion is quarantined, either as a separate split or with clear documentation linking the offset account to business use. This also simplifies reporting if your business grows and you later need to show a clean funding trail for investors or additional finance.
Frequently Asked Questions
Can I refinance to access equity if I'm planning to leave my teaching assistant role to run the business?
Most lenders require current employment income to approve the refinance. If you plan to leave your role, some lenders may accept projected business income if you provide a detailed business plan, but this is assessed case by case and not all lenders will approve it.
How much equity can I access without paying lenders mortgage insurance?
You can typically borrow up to 80% of your property's current value without triggering LMI. If your property is worth $500,000 and you owe $300,000, you could access up to $100,000 in equity.
Is the interest on equity borrowed for business purposes tax-deductible?
Interest on the portion of your loan used for business may be tax-deductible, while interest on the portion used for your home is not. You'll need to keep clear records and ideally separate the funds into different loan splits to make reporting straightforward.
What happens if the property valuation comes in lower than expected?
A lower valuation reduces your available equity, which means you may not be able to access the full amount you planned for. This is more common in areas where property values have plateaued or declined.
Should I use an offset account or redraw facility to manage the funds?
An offset account is usually the stronger option because it reduces your interest in real time and gives you structured access to funds as you spend them. A redraw facility only allows you to withdraw extra repayments and doesn't offset your interest.
