What Is Equity Release & How Does It Work?

For many Australians, their home is their largest asset. As property values increase and a mortgage is gradually paid down, homeowners can build substantial home equity. But that wealth is generally tied up in the property rather than sitting in a bank account where it can easily be used.

Equity release is a broad term for ways homeowners can access some of that value without necessarily selling and moving out of their home.

Depending on the option, releasing equity might involve borrowing against the property, refinancing an existing mortgage, exchanging part of the future value of the property for funds today, or using another type of equity release arrangement.

Each works differently, so it is important to understand not only how much money you may be able to access, but also what the arrangement could mean for your future home equity, cash flow and estate.

What Does Equity Release Mean For Homeowners?

Your home equity is broadly the difference between the current market value of your property and the amount you still owe against it.

For example, if your home is worth $1.5 million and you have a $400,000 mortgage outstanding:

$1,500,000 property value − $400,000 mortgage = $1,100,000 home equity

Having $1.1 million in equity does not mean you necessarily have $1.1 million available to spend. The equity remains tied to your property unless you sell the property or use an arrangement that allows you to access part of it.

This is where equity release can come in.

An equity release loan or another form of home equity arrangement may allow an eligible homeowner to access funds while continuing to live in their property. Exactly how much can be accessed depends on the type of product, property value, existing mortgage, eligibility requirements and provider terms.

Equity release should therefore be viewed as a category of financial options rather than one specific type of product.

How Much Equity Do You Have In Your Home?

You can get a basic indication of your home equity using:

Current property value − outstanding mortgage balance = estimated equity

The calculation itself is straightforward. Determining how much of that equity you can actually access is more complex.

Providers may consider factors including:

• the current market value of the home
• the amount already owing against the property
• the type and location of the property
• the homeowner's circumstances
• applicable lending or product criteria
• the amount being requested.

A property valuation may also form part of the process. With HomeFlex, for example, LongView arranges a professional independent valuation to establish the property's current market value before presenting an offer.

Homeowners considering HomeFlex can also use the HomeFlex Calculator to get an initial estimate, followed by the HomeFlex Eligibility Checker to see whether their property and circumstances may meet the relevant criteria.

What Can Released Home Equity Be Used For?

The reasons homeowners consider accessing their equity vary considerably.

Some may need funds to reduce financial pressure, while others want to use the wealth accumulated in their home for a significant life event or expense.

Potential uses can include:

• paying down or consolidating existing debts
• managing mortgage pressure
• renovating or maintaining the home
• covering unexpected medical or life expenses
• supplementing retirement finances
• helping children purchase a home
• funding certain business needs
• meeting financial obligations following a separation or divorce.

For example, accessing available equity may help some homeowners fund a property settlement while avoiding the immediate need to sell the family home. LongView provides more information about how eligible homeowners may access their home equity to stay in their home after a divorce property settlement.

The appropriate use of released funds will depend on your circumstances. Accessing equity also reduces or changes the financial interest you retain in your property, or creates an obligation that will eventually need to be settled, depending on the product chosen.

What Are The Different Ways To Release Home Equity?

There is no single method of equity release. Australian homeowners may encounter several different approaches, each with its own costs, eligibility requirements and long term implications.

Refinancing Your Home Loan

One option is to refinance a home loan and increase the amount borrowed against the property.

For example, a homeowner with substantial equity may refinance to a larger loan and receive part of the additional borrowing as cash.

This can provide access to equity without selling the property, but it remains conventional borrowing. The homeowner must satisfy the lender's approval and serviceability requirements, and the additional amount generally attracts interest and needs to be repaid under the terms of the new loan.

Refinancing can make sense for homeowners who have sufficient income to comfortably meet the repayments and who are comfortable increasing their mortgage balance.

It may be less suitable where the main reason for accessing equity is to reduce monthly cash flow pressure.

Reverse Mortgage

A reverse mortgage allows eligible homeowners to borrow against the equity in their property.

Unlike a standard mortgage, borrowers generally do not need to make regular repayments while continuing to live in the home. Instead, interest is added to the loan balance and compounds over time.

The loan, accumulated interest and applicable fees generally become repayable when specified events occur, such as the property being sold, the borrower moving out permanently or the estate dealing with the property after the borrower dies.

Because interest compounds, the balance can increase substantially over a long period, reducing the equity remaining in the property.

Eligibility is also commonly linked to age and property value.

Australian reverse mortgages entered into from 18 September 2012 have negative equity protection, meaning borrowers generally cannot be required to repay more than the market value of their home, subject to the relevant rules and agreement.

Home Reversion Plans

Home reversion, also referred to by MoneySmart as home sale proceeds sharing, works differently from a loan.

Under this type of arrangement, a homeowner effectively sells a proportion of the future value of their home in exchange for a discounted amount today.

The homeowner continues living in the property and retains the remaining proportion of the home's equity. When the property is eventually sold, the provider receives the agreed proportion of the sale proceeds.

The amount received upfront can be considerably less than the eventual value of the share transferred. As a result, homeowners need to consider what they receive today against what that share of the property could be worth in the future.

HomeFlex: A Shared Equity Option

HomeFlex provides another way for eligible homeowners to access some of the wealth built up in their property.

Rather than charging compounding interest or requiring monthly repayments, HomeFlex provides funds upfront in exchange for an agreed share of the property's future capital growth. The homeowner remains solely on the property title.

The process generally involves:

1. Estimating your available equity. The HomeFlex calculator can provide an initial indication of what you may be able to access.
2. Checking eligibility. Property and customer eligibility requirements apply.
3. Valuing the property. LongView arranges an independent professional valuation based on current market value.
4. Reviewing the offer. The offer outlines how much may be accessed and the relevant agreement terms.
5. Receiving the funds. Once the agreement is completed, the approved funds are released.
6. Repaying later. There are no ongoing monthly HomeFlex repayments. HomeFlex can be repaid when the home is sold, when the mortgage is refinanced, or when the homeowner chooses to buy out HomeFlex's share.

Because there is no compounding interest, the amount ultimately payable is instead linked to the agreed terms and changes in the property's value.

Homeowners interested in this approach can learn more about how to unlock your home equity with HomeFlex.

What Should You Consider Before Releasing Home Equity?

Accessing equity can provide greater financial flexibility, but it also involves using part of the wealth accumulated in your home.

Before proceeding, it is important to understand both the immediate benefit and the longer term effect.

How The Agreement Affects Your Remaining Home Equity

Different products reduce your remaining equity in different ways.

With conventional refinancing, your equity is reduced because your mortgage debt increases.

With a reverse mortgage, the amount owing can rise over time as interest compounds.

With a home reversion arrangement, you give up an agreed proportion of the future value of the property.

With HomeFlex, the amount ultimately payable is determined under the agreement and is linked to the agreed share of future capital growth rather than compounding interest.

When comparing options, consider both the cash you receive now and how much home equity you could retain later.

What Happens If The Property Value Changes?

Property prices can rise or fall, and future property values cannot be guaranteed.

This is particularly important for arrangements where the eventual amount payable is linked to property value.

Homeowners should understand exactly how their chosen arrangement operates if their property rises significantly in value, remains relatively stable or declines.

Ask the provider to explain the calculation and, where available, review projections under different property growth assumptions rather than relying on a single future value estimate.

Costs, Fees And Exit Conditions

The absence of monthly repayments does not mean an equity release arrangement has no financial cost.

Depending on the product, costs can include interest, establishment expenses, valuation costs, ongoing charges or amounts linked to future property value.

Exit conditions also vary.

Before signing an agreement, understand:

• how the provider is compensated
• any upfront or ongoing fees
• how the final amount payable is calculated
• when repayment is required
• whether you can repay or exit early
• what happens if you refinance
• what happens when the property is sold
• what happens if the homeowner dies
• any other conditions contained in the agreement.

These considerations make it important to compare the complete financial outcome rather than focusing only on whether monthly repayments are required.

Effects On Government Benefits, Tax And Estate Planning

Releasing home equity can also have consequences beyond the property itself.

ASIC MoneySmart recommends considering how equity release could affect Age Pension eligibility, aged care affordability, future living expenses and the amount left to beneficiaries. It also recommends obtaining independent financial or legal advice before entering an equity release arrangement.

Government benefit implications can depend on how released money is received, held and used. Tax consequences can also vary according to individual circumstances and the purpose of the funds.

If you receive a pension or other government benefit, consider checking the potential impact with Services Australia. Independent financial, tax and legal advice may also help you understand the consequences for your broader financial position and estate plan.

Is Equity Release The Right Option For You?

Equity release can give homeowners access to wealth that would otherwise remain tied up in their property. That may provide flexibility when selling or downsizing is not preferred.

However, there is no single equity release option that will suit everybody.

A homeowner who has strong income and can comfortably make repayments may consider refinancing. An older homeowner may explore a reverse mortgage or the Government's Home Equity Access Scheme. Another homeowner may prefer an arrangement where the financial outcome is linked to future property value rather than compounding interest.

The important question is not simply “How much equity can I release?”

It is also:

“What will accessing that equity mean for me in five, ten or twenty years?”

Compare how each option deals with repayments, interest or growth sharing, eligibility, fees, property value changes and the amount of equity you are likely to retain.

For eligible homeowners who want to access part of their property's value without monthly HomeFlex repayments or compounding interest, HomeFlex is one option worth comparing with the alternatives.

You can start by using the HomeFlex Calculator to estimate what you may be able to access, then use the Eligibility Checker to see whether HomeFlex may be available for your property.

Whatever approach you consider, make sure you understand the agreement, compare the long term financial implications and obtain independent advice where appropriate before making a decision.