Last reviewed September 2026 by Megan Birot, Content Editor, OurTop10. Figures checked against the sources named in the article.A cash-out refinance replaces your home loan with a bigger one and pays you the difference. If your place is worth $900,000 and you owe $500,000, a lender will usually let you borrow up to 80% of the value, which is $720,000, and hand you the $220,000 gap in cash. That cash is called your usable equity, and what you do with it decides whether this is a smart move or an expensive one.
This guide covers how the numbers work, what lenders will and will not release equity for in 2026, what it costs, and the tax trap that catches investors.
How usable equity is worked out
Equity is your property’s value minus what you owe. Usable equity is smaller, because lenders will not lend the lot. The standard ceiling is 80% of the valuation without lenders mortgage insurance; some lenders go to 90% with insurance, but the premium and the higher rate usually make that a poor trade.
The sum is simple: 80% of the valuation, minus your current loan balance. On a $900,000 home with a $500,000 loan, that is $720,000 less $500,000, or $220,000 of usable equity. On a $700,000 home with a $600,000 loan it is $560,000 less $600,000, which is nothing at all. If you want the figure for your own numbers, our guide to calculating your equity walks through it, and the calculator further down this page does it for you.
Two things move the result more than people expect. The valuation is the lender’s valuer’s figure, not the price the neighbours got, and in suburbs where prices have come off since 2024 it is often lower than owners assume. And the loan balance the lender uses includes any redraw you have already taken back out.
Usable equity calculator
Enter what the property is worth and what you owe. The calculator shows how much a lender will normally let you draw at 80% of value, and what the new repayment looks like.
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How a cash-out refinance works
You apply as if for a new loan, because that is what it is. The lender values the property, reassesses your income and debts against the larger loan, and asks what the money is for. If it approves, the new loan pays out the old one at settlement and the balance lands in your account.
There are two ways to do it. A top-up with your current lender adds a second loan account alongside the first; it is quicker, there are no discharge fees, and your fixed rate, if you have one, stays intact. A full refinance to a new lender replaces everything; it takes longer and costs more upfront, but it is also the moment lenders compete for you, and the rate on the whole loan often drops.
Either way you are assessed at 3 percentage points above the actual rate, which APRA confirmed in May 2026 stays in place. With the cash rate at 4.35% that means a loan at 6% is tested at 9%. Borrowers who could carry the old loan comfortably are sometimes surprised to find the bigger one does not pass.
What lenders will release equity for
Lenders ask the purpose because it changes their risk and, above a threshold, the paperwork. Common purposes, roughly in order of how easily they get through:
- Renovation. The most accepted reason. Lenders like it because the money goes back into the security. Larger amounts may need quotes or a builder’s contract.
- Deposit on an investment property. Standard practice. Many investors fund the deposit and costs on the next purchase this way rather than saving cash. Our guide to investment property loans covers the structure.
- Debt consolidation. Paying out a credit card at 20% with mortgage money at 6% is arithmetic that works, provided the card is closed afterwards. Lenders often insist on that.
- Shares or a managed fund. Accepted by most lenders, sometimes with a cap on the amount.
- Business capital, school fees, a car. Accepted by some lenders and not others. The larger the amount the more evidence is wanted.
Most lenders will release up to around $100,000 with a signed declaration of purpose. Above that, and at some lenders above $250,000, expect to show evidence: a contract of sale, a builder’s quote, a statement for the debt being paid out. “Future investment” with nothing behind it is the answer that gets declined.
What it costs
Rate. The whole loan is repriced, not just the new part. If your existing rate has drifted above what the lender offers new customers, a cash-out refinance is the moment to fix that. If you have a sharp rate already, make sure the larger loan keeps it.
Discharge and settlement. Leaving a lender usually costs a discharge fee of a few hundred dollars plus the state registration fees on the mortgage, and the new lender may charge an application or valuation fee. Most of it is recoverable through a lower rate within the first year or two.
Break costs. If any part of your loan is fixed and you refinance to a new lender, the fixed portion attracts a break cost. It can run to thousands of dollars when rates have fallen since you fixed. A top-up with the same lender avoids it.
The interest itself. This is the cost people skip. $50,000 borrowed at 6% over the remaining 25 years of a loan costs about $46,000 in interest if you only make the minimum repayment. Cheap money is still money.
Lenders mortgage insurance. Go above 80% of the valuation and the premium applies to the new loan, which on a large balance can be $15,000 or more.
The tax rule that decides how to structure it
The tax office looks at what borrowed money was used for, not what it was secured against. Interest on money used to buy an investment property or shares is deductible. Interest on money used for a renovation of your own home, a car or a holiday is not. If both purposes sit in one loan account, working out the deductible share becomes a yearly calculation that gets worse every time you make a repayment.
The fix is to have the lender set the released amount up as a separate loan split, with its own account number, so every dollar of interest on it has one purpose. Investors should do this without exception. Owner-occupiers using the money for a renovation do not need to, but it costs nothing and keeps the option open if the property is ever rented out.
A worked example
A couple owed $500,000 on a home the lender valued at $900,000. They wanted $60,000 for a kitchen and had $22,000 sitting on two credit cards at 20% interest. Their broker refinanced the loan to $582,000 with a new lender at a lower rate: $500,000 to pay out the old loan, $60,000 in a separate split for the renovation, and $22,000 to clear the cards, which the lender required to be closed. The card repayments of about $700 a month disappeared. The extra $82,000 on the mortgage costs them roughly $530 a month over the remaining term, and the lower rate on the main loan clawed back about $150 of that. Net effect: around $320 a month better off, a new kitchen, and no card debt.
The version that goes wrong is the same couple keeping the cards open and running them back up. Eighteen months later they have the mortgage and the card debt. Lenders know this, which is why many make closing the cards a condition.
When not to do it
- You are already above 80%. The insurance premium and the higher rate wipe out most of the benefit.
- The money has no return. A holiday or a car on a 25-year mortgage is the most expensive way to pay for either.
- The repayment does not pass the stress test. If the bigger loan only works at today’s rate, it does not work.
- You are inside a fixed term and would need to leave the lender. Ask for a top-up instead and wait out the term.
- The property has fallen in value. Get a broker to run a desktop valuation before you apply, because a formal valuation that comes in low is on your file.
What to do next
Work out your usable equity with the calculator on this page, then decide the purpose before you ring anyone, because the purpose sets which lenders will do it and how the loan should be split. A broker will price the top-up against a full refinance across a lender panel in one conversation. Our ranked broker lists for Sydney, Melbourne and Brisbane are reviewed regularly, and if the equity is going into another property, our guide to investment property covers what happens next.
FAQs for Cash-Out Refinancing
Replacing your home loan with a larger one and taking the difference in cash. The extra amount is drawn from the equity you have built up, and it becomes part of your mortgage.
Usually up to 80% of the property’s current valuation, minus what you still owe. On a $900,000 home with a $500,000 loan that is $220,000. Going above 80% means paying lenders mortgage insurance.
Renovations, a deposit on an investment property, paying out higher-interest debts, shares, and with some lenders a business or a car. Above about $100,000 most lenders want evidence of the purpose, such as a contract or a quote.
Only on the part used to buy an income-producing asset such as an investment property or shares. Interest on money used for your own home, a car or a holiday is not deductible. Keep the released amount in a separate loan split so the two are never mixed.
A top-up is quicker, avoids discharge and break fees and keeps a fixed rate intact. A full refinance to a new lender takes longer but is the moment lenders compete for you, so the rate on the whole loan often improves. Price both.
A top-up with your existing lender can settle in one to two weeks. A refinance to a new lender usually takes three to six weeks, including the valuation and the discharge of the old loan.
Megan Birot
Content Editor, OurTop10
Megan Birot is OurTop10’s Content Editor. She holds a Certificate IV in Finance and Mortgage Broking (FNS40821) and checks every guide on the site against current lender policy, government scheme rules and state revenue office thresholds before it goes live.
She also runs the editorial reviews on OurTop10’s broker, accountant, conveyancer and buyer’s agent shortlists, and writes the media releases for its quarterly mortgage stress research.