How does a personal loan work when you secure it with equity?

Take advantage of the equity you've built up in your home by using it to finance your next purchase.

Secured personal loans can be a great way to help you take your next step, whether it be to a new car, to home renovations or to any other large purchase. While car loans are the most common type of secured personal loans, a vehicle isn't the only way to guarantee a loan. If you own your own home and have built up some equity in it, you can use that equity as a guarantee on your next loan. Find out how this works in this guide.

How does a personal loan work when you secure it with equity?

A loan secured against your home works in the same way as other secured personal loans. When you apply you will need to provide details of your mortgage, your personal financial position and the reason you're taking out the loan. Your application will be assessed and if approved, you will be given a loan based on how much equity you hold and how much the lender thinks you can afford to repay.

Working out your equity

Home equity is essentially the difference between your property's value and any debt you hold against it. Typically, you'll be able to borrow up to 80% of your home's value minus the debt you hold against it. For example, if your home is worth $500,000 and you've paid off $300,000, you'll have $200,000 left on your mortgage. Here's how much you'll be able to borrow on a personal loan in that scenario:

  • 80% of a $500,000 home = $400,000
  • The amount of debt on the property = $200,000
  • Value - debt = $200,000

Do you need to apply with the same lender as your mortgage?

No, you don't. However, your lender may have secured personal loan options that allow you to use your home equity as a guarantee that you might want to consider. If you decide to apply with a different lender you will need to provide details of your mortgage, including your total loan and how much equity you hold.

The types of loans available when using your equity give you real flexibility:

  • Secured personal loan. This loan is secured to the amount of equity you hold but can be used for any purpose. it is given to you in a lump sum and you pay it back in instalments, usually over a period of one to seven years. As the loan is secured you can enjoy a more competitive rate.
  • Line of credit loan. As a continuous source of credit, you can draw on this loan as and when you need to. You'll have access to the amount of credit that you're secured for and be required to make regular repayments, and as you repay the credit it will become available again. The term for this kind of loan is usually ongoing.

Find out about investing in property with a home equity loan

What kind of purchases and investments can you make with an equity-secured personal loan?

While the loans themselves are secured, there aren't many restrictions on how you use your loan. You can use the money for:

  • Home renovations
  • New and used car purchases
  • Holidays
  • Large purchases, such as furniture

What are the features of this type of loan?

  • Competitive interest. Your loan is secured by a valuable and appreciating asset, your property, so you will usually get a competitive interest rate.
  • Flexible loan purpose. You can usually use the loan amount for whatever purpose you need.

Is there anything to consider before applying?

This is a risky type of loan should you default. If you fail to repay the loan the lender may be able to sell the property to pay the loan. Before you apply, consider how financially stable you are and if this is the right type of loan for you to take out.

A personal loan secured by your home equity can offer you a low interest rate as well as a flexible way to finance a personal purchase. However, as there are risks involved, remember to consider all of your options before you apply.

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Important Information*
HSBC Personal Loan

A competitive fixed interest rate loan with the option to make extra repayments. Rates range from 9.5% p.a. to 15.99% p.a. based on your credit history.

Harmoney Unsecured Personal Loan

Interest rates are tailored to each applicant individually, and start from as low as 6.99% p.a. to 26.95% p.a.. based on your credit history.

SocietyOne Unsecured Personal Loan

Based on your risk profile, you will receive a tailored rate between 7.5% and 20.49% with a SocietyOne personal loan.

Latitude Personal Loan (Unsecured)

An unsecured loan with a tailored rate from 13.99% p.a. to 29.99% p.a. designed for multiple purposes including renovating, buying a car or travelling.

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2 Responses

  1. Default Gravatar
    JohnOctober 16, 2016

    I have a cash deposit of $1000 need t0 borrow $2,500 to $3,000 I am the aged pension $900 per fortnight Have $ 15,ooo in furniture assets this is NOT a formal loan application ,information only !

    • finder Customer Care
      ElizabethOctober 17, 2016Staff

      Hi John,

      As a financial comparison service we don’t fund the loans ourselves, and if you’re looking to apply you can click “Go to Site” when you find a lender you want to apply with. Most lenders require the security you offer to be home equity or a vehicle, but you may be able to search for some alternative lenders willing to use your furniture. You can find a list of lenders that consider retired applicants on this page.

      Hope this helps,


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