Equity can get you a better home loan rate because most lenders price loans by LVR: the less you owe compared with your property’s value, the cheaper the rate tier you can access. If your home has risen in value or you’ve paid the loan down, ask for a revaluation and a re-price, or refinance if your lender won’t move. Moving from above 80% to below 70% LVR can also remove lenders mortgage insurance from future borrowing and give you usable equity for renovating or investing.
What home equity is
Equity is the difference between your property’s value and what you owe on it. Usable equity is what lenders will let you borrow against, usually up to 80% of the value, minus your current loan.
| Example | |
|---|---|
| Property value | $800,000 |
| Loan balance | $520,000 |
| Equity | $280,000 |
| LVR (loan divided by value) | 65% |
| Usable equity (80% of value minus loan) | $120,000 |
Your LVR is the number that matters for your rate. It’s based on the lender’s valuation, not what you think the property is worth.
How equity lowers your rate
Lenders use risk-based pricing, and LVR is one of the biggest factors. Many lenders have pricing tiers at around 90%, 80%, 70% and sometimes 60% LVR, and the gap between tiers is often a tenth of a percentage point or more. The biggest step is usually at 80%: above it you’ll often pay a higher rate and lenders mortgage insurance on any new borrowing.
On a $520,000 loan, a 0.20% lower rate saves about $1,040 a year in interest. See how LVR changes the rate you’re offered.
The catch: lenders don’t usually re-price your loan automatically when your LVR falls. They set your rate when you take the loan out, so you need to ask.
Steps to use your equity for a better rate
- Estimate your property’s value. Look at recent sales of similar homes nearby. Online estimates are a rough guide only.
- Work out your LVR. Divide your loan balance by the estimated value. Check where it sits against your lender’s tiers.
- Ask your lender for a revaluation. Many lenders will order a valuation for existing customers, often free. If it confirms a lower LVR, ask for your rate to be re-priced to the new tier.
- Negotiate. Use competitors’ rates for your new LVR as leverage.
- Refinance if needed. A new lender will value the property as part of the application and price the loan on the new LVR. Weigh the saving against switching costs.
Values have fallen in some cities in 2026: national home values were 5.2% below their March peak in September, with bigger falls in Sydney and Melbourne, according to Cotality. If values have dropped in your area, a revaluation may not help right now, but regular repayments still lower your LVR over time.
Other ways to use equity
- Renovating. Borrow against equity to improve the property, which may lift its value further.
- Investing. Use equity as the deposit for an investment property through a separate loan, so the investment debt stays clearly separate for tax.
- Buying before you sell. Equity can support a bridging loan while you sell your current home.
- Consolidating debt. Rolling high-interest debts into your home loan cuts the rate, but spreading a car loan over 25 years can cost more in total. Pay it off quickly.
Risks to weigh
- Borrowing more increases your LVR, which can push you back into a higher pricing tier.
- Values can fall. Borrowing up to 80% leaves little room if prices drop.
- Serviceability still applies. Lenders test any extra borrowing at your rate plus 3 percentage points.
- Fees. Valuation, application and LMI costs can eat into the benefit.
Frequently asked questions
How do I find out how much equity I have?
Subtract your loan balance from your property’s current value. For a reliable value, ask your lender for a valuation or check recent sales of similar properties nearby. Usable equity, the amount you can typically borrow against, is usually 80% of the value minus what you owe.
Will a lower LVR get me a lower rate?
Often, yes. Many lenders price loans in LVR tiers, with sharper rates below 80% and sometimes below 70% or 60%. But your rate usually won’t change automatically, so ask your lender to re-price your loan, or refinance to a lender that will price it on your current LVR.
Can I ask my lender for a revaluation?
Yes. Most lenders will arrange a valuation for an existing customer on request, sometimes free and sometimes for a fee. If the value has risen enough to move you into a lower LVR tier, use it to ask for a lower rate.
Sources
- Canstar, Average home loan interest rates, as at 2 October 2026
- Cotality, Australian housing values down for sixth straight month in September, 1 October 2026
- ASIC Moneysmart, Switching home loans
General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.