Equity Release: What It Is and How Refinancing Works

What Equity Release Means in Practical Terms

Equity release lets you access the value built up in your property without selling it. When you refinance to release equity, you increase your loan amount and receive the difference as cash, which you can then deploy for investment purchases, renovations, or consolidating higher-interest debts. Your loan to value ratio determines how much you can access, with most lenders allowing borrowing up to 80% of your property value without lenders mortgage insurance, or up to 90% with it.

Consider a criminal lawyer who purchased in Newtown five years ago for $950,000 with a $760,000 loan. That property now values at $1,250,000, and the loan has reduced to $710,000. At 80% LVR, the available borrowing is $1,000,000, meaning $290,000 of usable equity sits in that property. Through a refinance to access equity, that lawyer can extract up to $290,000 while keeping the existing property as their primary residence.

How the Loan to Value Calculation Works

Lenders calculate your maximum loan amount by multiplying your property value by their acceptable LVR percentage. The usable equity is that maximum loan amount minus your current debt. If your property is worth $1,250,000 and you want to borrow at 80% LVR, your maximum loan is $1,000,000. Subtract your existing loan of $710,000, and you have $290,000 available to withdraw.

The 80% threshold matters because it avoids lenders mortgage insurance, which can add several thousand dollars to your costs. Criminal lawyers often qualify for LMI waivers that let them borrow up to 90% without this insurance, which increases the accessible equity substantially. On that same $1,250,000 property, borrowing at 90% LVR allows a $1,125,000 loan, making $415,000 available rather than $290,000.

When Criminal Lawyers Typically Access Equity

Most criminal lawyers who refinance for equity do so for one of three purposes: purchasing an investment property, funding substantial renovations, or consolidating debts. Each serves a different financial objective, and the structure of your refinance changes based on which outcome you want.

For investment purchases, the extracted equity becomes your deposit on a second property. If you access $290,000 from your Newtown property, you can use $260,000 as a 20% deposit on a $1,300,000 investment property in a high-yield suburb, with the remaining $30,000 covering stamp duty and purchase costs. This approach lets you expand your property portfolio without saving a second deposit from income, which accelerates wealth building while you're still establishing your practice or working through the earlier years of criminal law where income can fluctuate with case loads.

The Refinancing Process for Equity Access

Refinancing to release equity involves applying for a new loan that pays out your existing mortgage and provides additional funds. Your lender assesses your current property value through a desktop valuation or full inspection, then calculates your maximum borrowing based on that updated figure and your income. Criminal lawyers working at mid-tier or boutique firms sometimes face additional scrutiny around income stability, particularly if you've recently moved firms or taken on a contract role. Documentation of your employment history and a letter from your firm confirming ongoing engagement usually addresses this.

The approval timeframe sits between two and four weeks for most applications. Once approved, your new loan settles, your old loan is discharged, and the equity funds appear in your nominated account. You then deploy those funds according to your stated purpose, whether that's transferring a deposit to a conveyancer for an investment purchase, paying contractors for renovations, or clearing credit card and personal loan balances through debt consolidation.

How Servicability Affects Your Equity Access

Your income determines not just whether you can refinance, but how much equity you can actually access. Lenders assess whether your income can service both your existing loan and the additional borrowing. A criminal lawyer earning $180,000 annually can typically service a larger loan increase than one earning $120,000, even if both have identical equity positions in their properties.

In a scenario where a criminal lawyer at a suburban firm has $350,000 in available equity but earns $115,000, the lender may only approve an additional $150,000 in borrowing due to servicability constraints. The equity exists, but income limits how much can be extracted in a single transaction. Waiting six months for a salary increase or bonus payment, or including a partner's income in the application, often resolves this constraint.

Interest Rate Considerations When Refinancing

When you refinance to access equity, you're establishing a new loan, which means you can also secure a lower interest rate if your current loan is uncompetitive. Many criminal lawyers who purchased properties three or four years ago remain on rates that are now 0.5% to 1.0% higher than what they could obtain through a home loan refinance. The equity release becomes an opportunity to reduce your rate while accessing funds, which partially offsets the cost of the increased loan amount.

Your rate depends on your LVR, loan size, and whether you're refinancing your primary residence or an investment property. Loans at 70% LVR typically receive sharper rates than those at 85% LVR, and larger loans often qualify for slightly lower rates than smaller ones. A criminal lawyer refinancing a $1,250,000 property to 80% LVR would expect a lower rate than one refinancing a $650,000 property to the same ratio, purely due to loan size.

Tax Treatment of Borrowed Equity

The purpose you use borrowed equity for determines its tax treatment. Equity accessed for investment purchases generates tax-deductible interest, while equity used for personal purposes like renovating your own home or consolidating consumer debts does not. This matters significantly for criminal lawyers in higher tax brackets, where deductibility can reduce the effective cost of borrowing by 39% to 47% depending on your marginal rate.

If you borrow $300,000 against your home to purchase an investment property, the interest on that $300,000 is deductible against your rental income and other assessable income. If you borrow the same amount to renovate your primary residence, none of that interest is deductible. Some criminal lawyers split their equity extraction, using $200,000 for investment and $100,000 for personal renovation, which requires careful loan structuring to maintain deductibility on the investment portion. Your mortgage broker can structure this through split loans or separate facilities to preserve the tax treatment.

Call One of Our Team

Whether you're looking to access equity for your first investment property, fund a substantial renovation, or consolidate debt at a lower rate, the structure of your refinance affects both your tax position and your long-term borrowing capacity. Call one of our team or book an appointment at a time that works for you to discuss your equity position and how refinancing can support your financial objectives.

Frequently Asked Questions