Releasing equity from your home usually means applying for additional borrowing secured against your property. This could be arranged as a home loan top-up, another loan facility or, in some cases, by refinancing your existing mortgage.
You are not withdrawing equity as cash without consequence. The amount borrowed is added to your debt and must be repaid, usually with interest.
Having equity does not automatically mean a lender will approve additional borrowing. The lender will also assess your income, expenses, existing debts, credit conduct, loan purpose and ability to manage the proposed repayments.
This guide covers ordinary mortgage top-ups and additional borrowing secured against a home. It does not cover reverse mortgages or specialist retirement equity-release products.
If you first need to understand how equity is calculated, read our guide to property equity and negative equity.
When you release equity:
A lender may also require an acceptable property valuation before determining how much equity may be available.
Property equity is the difference between the value of your property and the lending secured against it.
However, total equity is not necessarily the amount you can borrow. Lenders normally retain a security buffer rather than allowing the full difference between the property value and mortgage balance to be borrowed.
The portion that may potentially support further borrowing is often called usable or accessible equity.
Even when there appears to be sufficient security, the lender must still be satisfied that the additional loan is affordable and that the purpose and structure meet its policy.
A home loan top-up involves asking your existing lender to increase the lending secured against your property.
The additional amount may be established as a separate loan account rather than changing every part of your existing mortgage. The available structure depends on the lender, your current loans and the purpose of the funds.
A top-up application will generally require updated financial information and supporting evidence. The lender may also request a valuation.
Refinancing involves moving some or all of your mortgage to another lender. Additional borrowing may be considered as part of the refinance application.
A refinance should be assessed as a complete decision. Interest rates are only one consideration. Possible break costs, legal fees, valuation costs, loan features and the suitability of the new structure should also be reviewed.
Read our dedicated guide to refinancing a mortgage in New Zealand for more information.
In some circumstances, a separate loan secured against the property may be considered.
A second mortgage has different costs, risks and lender requirements from an ordinary top-up. It should not be treated as an interchangeable substitute for standard bank lending.
Read our second mortgage guide if this type of lending may be relevant.
A lender will want to understand why you need the additional funds. Common purposes can include:
Whether a purpose is acceptable will depend on the lender and the complete application. Approval should not be taken for granted simply because the borrower has sufficient property equity.
Using equity for an investment-property purchase requires a separate assessment of the proposed investment, overall security position and ability to service the additional borrowing. Read our guide to using equity to buy an investment property.
If the purpose is to combine other debts with a mortgage, read our debt-consolidation guide. A lower interest rate does not necessarily produce a lower total cost if short-term debt is repaid over a much longer period.
The lender may consider:
Different lenders can assess the same request differently. Their treatment of income, expenses, property security and particular loan purposes can vary.
For a broader explanation, read our guide to mortgage lending criteria in New Zealand.
There is no single amount or percentage that applies to every borrower.
A lender will normally begin with the property value it is prepared to use and determine the maximum lending it may consider against that security. Existing secured lending is then deducted to identify possible security headroom.
In simple terms:
Potential security headroom = the lending the lender may accept against the property minus existing secured lending
This is only an initial security calculation. It is not an approval or a guaranteed borrowing amount.
The final amount may be lower because of affordability, existing debts, credit history, loan purpose, property type, lender policy or regulatory restrictions.
An automated property estimate may be useful as an early indication, but the lender may require a registered valuation or another valuation method it accepts.
Additional borrowing may affect more than the outstanding balance.
Before proceeding, consider:
Extending a loan term may make repayments appear lower, but it can increase the time taken to repay the debt and the total interest charged.
The property remains security for the borrowing. That makes it important to assess both the immediate purpose and the longer-term effect on your financial position.
No. Your current lender may approve a home loan top-up without moving your existing mortgage.
However, a refinance may be considered if the current lender cannot support the request or another lender appears to offer a more suitable overall option.
Moving lenders solely to obtain additional borrowing should not be assessed in isolation. The costs and features of the complete mortgage need to be compared.
The usual process involves:
The lender may request further information before making a final decision.
Not necessarily.
This page uses “equity release” to describe a standard home loan top-up or other additional mortgage borrowing. A reverse mortgage is a specialist product, commonly designed for older homeowners, with different repayment arrangements, costs and risks.
No. Equity addresses only part of the application.
The lender must also be satisfied with affordability, credit history, loan purpose, property security and its other lending criteria.
Usually, yes. The additional amount becomes part of the lending secured against the property.
It may be placed in a separate loan account, but it still increases the borrower’s overall debt.
Interest is normally charged on the additional amount once it has been drawn.
The interest rate and total cost depend on the loan structure, repayment period and applicable lender terms.
Potentially. A home loan top-up may be arranged through your existing lender if the request meets its criteria.
Changing lenders is not automatically necessary.
Potentially. A lender may be able to establish the additional borrowing as a new loan split without changing the existing fixed loan.
The available structure depends on the lender and current mortgage. Refinancing or changing an existing fixed loan could result in break costs.
“Home equity loan” and “HELOC” are terms commonly used overseas.
New Zealand lenders may provide home loan top-ups, revolving-credit facilities or other secured loan structures. Their features should not be assumed to be the same as an overseas home-equity product.
Before applying for a top-up, it is useful to establish how much usable equity may exist, whether the additional repayments are affordable and which lending structure may suit the intended purpose.
Platinum Mortgages can review your position, explain the options that may be relevant and help prepare the application and supporting evidence.
Learn more about how we help with home loans, or contact Platinum Mortgages to discuss releasing equity.
Platinum Mortgages New Zealand Limited (FSP752271) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. Angela Downie (FSP742251) is a Financial Adviser at Platinum Mortgages who provides mortgage advice to New Zealand borrowers under that licence and has worked in the financial industry since 2006.
Platinum Mortgages helps homeowners assess whether available equity could support additional borrowing, how a lender may structure the request and what the higher mortgage balance could mean for repayments.
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