7 ways to build equity in your home faster

Home equity is your property's value minus the debt secured against it. If your home is worth $800,000 and your home loan balance is $400,000, you have $400,000 in total equity.

That figure can move both ways. Paying down the principal increases your equity if the property value stays the same. A fall in value or an increase in your loan reduces it.

Usable equity is an estimate of the extra amount you might be able to borrow against your home. It depends on the lender's valuation, lending limit and assessment of your application.

For an initial estimate, you can use 80% of the property's value, less your existing loan. The 80% figure is a common starting point for avoiding lenders mortgage insurance, or LMI. It isn't a promise that a lender will approve that amount, and some products or borrowers have different limits.

This example excludes fees and assumes no other debt secured against the property. You still need to qualify for the larger loan. Your income, spending, other debts, credit history and intended use of the money all matter.

Use the home equity calculator to get a starting estimate, then check the result against a lender valuation and your borrowing capacity. An online property estimate won't necessarily be the figure the lender accepts.

If you've renovated or comparable homes have sold since your last valuation, it may be worth checking what a lender would value your home at now.

An agent's appraisal, an online estimate and a lender valuation serve different purposes. None guarantees the price a buyer will pay. A lender may use an automated assessment, a desktop review or an inspection, depending on the property and application.

Different lenders can accept different valuations. I'd check the likely loan outcome before paying for reports or applying elsewhere: a higher valuation is only useful if the loan also suits you.

If a valuation appears to have missed something, start with evidence:

• Correct property details such as the land area, bedrooms or completed improvements.
• Collect recent settled sales of comparable homes, explaining differences in size, condition and location.
• Supply plans, dated photographs and completion evidence for relevant renovations.

Ask which valuation method was used before requesting a review. A physical inspection may reveal something a desktop assessment missed, but it does not guarantee a higher figure.

This hypothetical comparison keeps the loan balance at $600,000 and uses an 80% lending limit throughout.

A $100,000 increase in the valuation adds $80,000 to the estimated usable equity in this example. The lender may approve less after checking your repayments and the purpose of the loan.

If the valuation seems low, our guide explains how to challenge a bank valuation and what evidence may help.

A larger deposit gives you more equity from the start because you borrow less against the same property. It can also reduce your LMI cost or help you avoid it, depending on the loan and your eligibility.

Keep buying costs and a cash reserve separate. Putting every dollar into the deposit can leave you short for conveyancing, duty, moving costs or repairs after settlement.

Family assistance and eligible buyer schemes may help with the upfront funds, but the lender still needs to know where the money comes from and whether you have to repay it. Check the conditions before treating it as part of your deposit.

Read more about LMI and planning your deposit.

A shorter principal-and-interest loan term pays down the debt sooner, but the required repayments are higher. I'd compare that commitment with keeping a longer term and making voluntary extra repayments where the loan allows them.

The following example uses a $640,000 loan at an illustrative 5.4% annual interest rate. It assumes monthly principal-and-interest repayments, a constant rate and no fees. It is a calculation example, not a current rate offer.

Figures are rounded to the nearest dollar. The calculations use unrounded monthly repayments; actual lender calculations and changing rates will affect the result.

Moving from 30 years to 20 years in this example requires about $772 more each month. That is a substantial commitment. Check it against parental leave, a change in hours or other spending you expect, as well as today's budget.

A renovation can make your home more useful and may increase its value. You won't necessarily get back what you spend.

Before starting, compare the quotes, any approvals required and the likely value of the finished property. Include a contingency for work you can't see until the job starts. Overcapitalising, poor workmanship or an awkward layout can leave you with a larger debt and little extra value.

For example, if you borrow $60,000 for renovations and the property's value rises by $40,000, your total equity is $20,000 lower immediately afterwards, ignoring repayments and fees. The renovation may still be worthwhile for your family, but it hasn't increased your equity.

A smaller renovation may fit a loan increase based on the home's current value. A structural project may need construction finance, with the lender assessing the proposed work and releasing funds in stages. You cannot assume the expected finished value will be available as cash before work starts.

Before signing, check which valuation the lender will use, when funds become available and whether that timing matches the builder's invoices. Include costs outside the building contract, such as approvals, temporary accommodation and a contingency. Keep the cash needed to finish separate from the money you want left for household emergencies.

Our renovation loan guide compares the funding options. ANZ's renovation guidance also explains why structural work can require a construction loan.

Extra repayments reduce the principal sooner. Check your loan's rules first, especially if you have a fixed rate with an extra-repayment limit or potential break costs.

Here is a hypothetical $680,000 loan over 30 years at a constant 5.4%, with monthly principal-and-interest repayments and no fees. The standard monthly repayment is approximately $3,818. Each extra payment starts in the first month and continues until the loan is repaid.

These estimates use unrounded repayments and a smaller final payment. They won't match a loan with changing rates, fees or a different repayment schedule.

One option is to automate an affordable extra amount after payday. Another is to pay half the monthly repayment every fortnight: 26 half-payments add up to 13 monthly payments over a year. Check how your lender sets fortnightly repayments, because simply changing the payment frequency doesn't always produce that extra annual payment.

You can model your own amount with our extra repayment calculator or read how to pay off your home loan faster.

A lump sum can reduce your balance without committing you to a higher payment every month. That might be part of a bonus, a tax refund or savings you no longer need for another purpose.

Keep enough accessible money for upcoming bills and emergencies. If you have an offset account, compare leaving the money there with paying it into the loan. Check the fees, access rules and tax implications if the property may become an investment later.

Some couples choose to cover living costs from one income and put more of the other towards the mortgage. That only works if the remaining income covers the household's actual needs.

You don't have to commit an entire salary. Agree on an amount you can both maintain and review it when your circumstances change. A plan that leaves room for childcare, repairs and time off work is easier to keep than one that sends you back to credit cards every month.

An offset account and redraw facility can both help reduce interest, but the money sits in different places.

With $20,000 in a 100% offset against a $400,000 loan, interest is generally calculated on $380,000. The loan still has a $400,000 balance. On a principal-and-interest loan, lower interest can allow more of the ongoing repayments to reduce principal over time.

Check that the offset is linked correctly and compare its fees with the likely interest saving. Moneysmart's offset guide explains the distinction and access considerations.

Subject to lender approval, you may be able to borrow against your home for renovations, another property or other permitted spending. The lender will assess the purpose and may ask for evidence of how you will use the money. ANZ, for example, describes supplementary lending and refinancing as possible ways to access equity.

If you sell your home, the amount left after repaying the loan and paying selling costs can go towards your next purchase. If you keep it and borrow more, you need to afford the additional debt. Our guide to using equity to buy a second property covers that decision.

I'd be careful about adding a car, boat, wedding or short-term debt to a long home loan. A lower interest rate can still mean more interest overall if you repay it over a much longer period. Your home also becomes security for that spending. Compare the total cost and repayment term before consolidating debt.

Ask for a comparison over the time left on the existing debt. If a car loan has 4 years remaining, compare paying it out over 4 years within the new arrangement with making the home loan's minimum repayment. Set a repayment target for that amount and confirm what happens to any cards or facilities being paid out. A zero balance does not close an account. Our debt-consolidation guide explains the trade-offs.

Borrowing to invest adds investment risk as well as loan repayments. Get financial and tax advice before committing to the investment or drawing the funds.

The use of the borrowed money matters. Borrowing against your home does not, by itself, make the interest deductible. Interest on money used for private home improvements is generally not deductible. Income-producing uses can have different treatment, and mixed private and investment borrowing needs careful records and apportionment. See the ATO's guidance on loan interest and private use.

This is general information, not tax advice. Ask your registered tax agent about the proposed use and loan structure before drawing or redrawing the money. If you're borrowing to invest, our debt recycling guide explains how separate loan splits work.

Building equity gives you options; you don't have to borrow against it. Before increasing your loan, compare:

• The new repayments, including what happens if rates rise.
• Application, valuation, legal and settlement costs that apply to the proposed loan.
• Any fixed-rate break costs and whether LMI may apply.
• The effect of extending the loan term, particularly when refinancing.
• The cash you will retain for emergencies and your plans for the property.

If refinancing is how you plan to access equity, compare the existing mortgage over its remaining term. Starting a fresh 30-year term can lower the minimum repayment while slowing the repayment of your existing debt. Show any extra borrowing separately so you can see what the project adds to the payment. Moneysmart's switching guide explains why the remaining term belongs in the comparison.

A lower future valuation can reduce your options. And if you cannot repay a loan secured against your home, you risk losing the property.

Client examples are based on real situations. Names and identifying details have been changed.