Quick answer
Usable equity is the gap between what your property is worth and everything already secured on it, trimmed back to a lending limit (the LVR) that suits the property type, its location and whether the new loan sits first or second on title. A private lender looks at that equity plus your exit plan, then sets the amount, anywhere from $20k to $5m.
Key points
- Equity is value minus every debt secured on the title, not just the bank loan
- Usable equity is smaller than total equity, because lenders keep a buffer
- A second mortgage or caveat reaches less of the equity than a first mortgage
- Several properties can be combined to lift what you can borrow
- No formal valuation required, which keeps the assessment quick
- Amounts
- $20k – $5m
- Security
- Residential, commercial or industrial property
- Position
- First mortgage, second mortgage or caveat
- Valuation
- No formal valuation required
Most business owners know roughly what their property is worth and roughly what they owe. The number that matters to a secured lender sits somewhere between those two figures, and it is almost always smaller than people expect on first pass. This page explains how that number is worked out, why it moves depending on where the loan sits on title, and how to get an honest read on it before you apply.
What is equity, and how is it different from usable equity?
Equity is the simple subtraction: what the property would sell for, minus every debt secured against it. That means the bank’s first mortgage, any line of credit tied to the title, a private loan already registered, and any caveat lodged by another lender.
Usable equity is the part a lender will actually advance against. No lender lends right up to the full value of a property. They hold back a buffer that covers:
- agent commissions, legal fees and other costs if the property ever had to be sold
- a fall in the market during the loan term
- interest that may be capitalised (added to the loan) rather than paid monthly
- how quickly that type of property tends to sell in its area
So if you have a property worth $1.5m with $600k owing, your equity is $900k, but your usable equity will be noticeably less than that.
How is the loan-to-value ratio (LVR) worked out?
The LVR is the loan amount divided by the property’s value. ASIC’s Moneysmart site describes it as the amount of a loan as a percentage of the value of the asset. When a lender talks about “keeping the LVR sensible”, they mean capping the total debt on the title at a fraction of value.
Two things are easy to miss:
- The LVR counts all debt on the title, not just the new loan. If a bank already holds a first mortgage, the lender assessing a second mortgage adds the bank’s balance to the new loan before measuring the ratio.
- There is no single number. The acceptable LVR shifts with the property type, its location, its condition, the term, the exit plan and whether the new loan ranks first or second.
Illustrative example: a Brisbane electrical contractor owns a home the lender assesses at $1,000,000, with $450,000 owing to the bank. Suppose, for this example only, the deal is structured to keep total secured debt at 70% of value.
| Illustrative figures | Amount |
|---|---|
| Assessed value | $1,000,000 |
| Total debt allowed at 70% (illustrative) | $700,000 |
| Less existing bank loan | $450,000 |
| Room for a second mortgage | $250,000 |
If the contractor instead refinanced the bank loan into a private first mortgage, the whole $700,000 could sit in one loan: $450,000 to clear the bank and $250,000 for the business. Same equity, different structure. Real limits are set deal by deal.
You can run your own numbers in the secured borrowing power calculator, which lets you choose the LVR and compare first and second positions.
Why does a second mortgage reach less of my equity than a first?
Priority. Under Australia’s Torrens title system, registered mortgages generally rank in the order they were lodged for registration; Queensland’s titles manual states this plainly and explains that the order is changed by registering a mortgage priority instrument signed by every affected mortgagee. If the property is sold, the first mortgagee is paid out in full before the second sees a dollar.
That waiting position is why a second lender is more careful about how far up the value it will go, and why a second mortgage business loan or caveat generally costs more than a first. You are not paying for paperwork; you are paying the lender to stand second in the queue.
| Loan position | Where it ranks | Typical effect on usable equity |
|---|---|---|
| Private first mortgage | Ahead of every other lender | Reaches the most equity, usually lowest cost |
| Second mortgage | Behind the first mortgagee | Tighter limit, priced higher for the extra risk |
| Caveat loan | Interest protected by a caveat on title | Usually the tightest, short term, can later convert to a registered second mortgage |
What reduces the amount of equity I can use?
Some features of a property make a lender pull the buffer in. None of them are automatic declines, but each one trims the usable amount:
- Specialised or hard-to-sell property. A purpose-built industrial shed in a small town has a thinner buyer pool than a three-bedroom house in a capital city suburb.
- Vacant land and rural holdings. Considered case by case, with more caution on location and access.
- Unclear exit. If the plan to repay is vague, the lender protects itself through a lower advance.
- Other interests on title. Existing caveats, writs or unregistered agreements reduce what can safely be lent and may need to be cleared first.
- Arrears or ATO debt. Not a deal-breaker, as these are considered case by case, but money going to clear arrears has to come out of the same equity.
A quick title search shows what is already recorded. In Victoria, for example, each folio on the Register lists the owner, the land description and encumbrances such as mortgages, caveats and leases. Your conveyancer or solicitor can pull an up-to-date search in any state.
How is the property’s value assessed without a formal valuation?
Our lending partner fundU does not order a formal valuation. A specialist reviews the property directly: location, type, condition, recent comparable sales and how readily it would sell. That avoids the valuation fee and the wait for a report, and keeps the figure grounded in how the property would actually trade. More on that process is on the no-valuation loans page.
One trap to avoid: the land value on a council rates or land tax notice is not a guide to your equity. NSW publishes that its land values reflect the land only and exclude buildings and improvements. A suburban house can be worth far more than its land value; a rundown commercial block can be worth less than the owner hopes.
Can I add a second property to unlock more?
Yes. When the equity in one title is too thin, a second property can be offered as additional security and the equity across both is combined. Each title carries its own registered mortgage or caveat. The mechanics, and the trade-offs of tying properties together, are covered in using multiple properties as security.
Before you do, check that your exit plan covers the whole debt. Bringing in another property increases what you can borrow; it does not change what you have to repay.
Ready to see where your numbers land? Send a 60-second enquiry with your estimated value and balances and a specialist will come back with a realistic figure.
Want to know your real number? See if you qualify
Rough maths at the kitchen table is a good start, but the figure that matters comes from a person who has looked at the property. Enquiring does not trigger a credit check, and your details stay with the direct lender rather than being passed around a panel of funders. A specialist reads every enquiry.
The most useful thing you can do is be precise: tell us what the property is, where it is, and every amount owing against it, including any private loans or caveats. Accurate inputs mean the answer you get first is the answer that holds.
Check your usable equity now. Loans run from $20k to $5m, and funding is possible within 24–48 hours once documents are in.
Frequently asked questions
Is my equity the same as what I can borrow?
No. Equity is the full gap between the property's worth and what is owed against it. A lender only advances part of that gap, keeping a buffer for selling costs, price movement and interest. The usable slice depends on the property type, its location and whether the loan sits first or second.
Does the land value on my council rates notice tell me my equity?
Not really. In NSW, for example, the land value used for rates and land tax is the value of the land only and excludes buildings and improvements. A lender assesses what the whole property would realistically sell for, which can be quite different.
Can I use equity if my bank already has a first mortgage on the property?
Often, yes. A private second mortgage or caveat loan can sit behind the existing bank loan and draw on the equity above it. Because the second lender ranks behind, the usable amount is usually tighter and the price higher than a first mortgage.
What if I have equity spread across two properties?
Two or more titles can be offered together so that the combined equity supports one larger loan. Each property is assessed on its own and then added up, and each title carries its own mortgage or caveat.
Do I need a formal valuation to find out my usable equity?
Not with this lender. fundU assesses the property itself rather than ordering a formal valuation, which saves the valuation cost and the wait. You give an honest estimate of value and what's owing, and the specialist works from there.
Does a bigger loan need more equity per dollar?
Not as a fixed rule, but larger loans and less common properties tend to be assessed more conservatively. A well-located home with a clear exit is easier to lend against than a specialised rural block, regardless of size.