How much equity can I cash out of my home?

Your idea of the value and the lender's valuer's idea are often different. The lender orders a valuation, sometimes an automated one for lower LVR cash out, sometimes a full inspection for larger amounts, and uses that figure. If the valuation comes in low, the usable equity shrinks. Ordering a desktop opinion through a specialist before applying avoids a wasted application, and if a full valuation disappoints, a different lender's valuer can produce a different number.

The new, larger loan is assessed at the lender's buffered rate, currently the actual rate plus three percentage points, on your income after expenses and other debts. A borrower with plenty of equity but modest income will often be capped well below the 80 per cent figure. Rental income from the intended investment purchase can be counted if the purpose is investment and the property is identified. Investment purpose cash out is also assessed with interest only options that can help capacity.

Some lenders allow cash out to 85 or 90 per cent LVR with LMI, usually for defined purposes such as buying another property or renovation, and rarely for unspecified purposes. The LMI premium is charged on the whole loan and can run to five figures, which erodes the benefit. It makes sense when the released equity buys an asset that will grow; it rarely makes sense for consumption.

Home valued at $1,200,000, current loan $650,000. Eighty per cent of $1,200,000 is $960,000. Less $650,000 leaves $310,000 of usable equity. If the borrower's serviceability supports a total loan of only $850,000, the cash out is capped at $200,000. If the purpose is an investment purchase and the new property's rent is counted, capacity might rise to $960,000 and the full $310,000 becomes available.