Refinancing to release equity from your home can provide funds for education costs without disrupting your existing savings or investments.
Many Camberwell families hold significant equity in their properties but hesitate to access it for fear of complicating their financial position. When structured correctly, refinancing to release equity allows you to fund tuition fees, accommodation, or study-related expenses while maintaining control over repayments and interest costs.
How Much Equity Can You Access for Education Costs?
Most lenders allow you to borrow up to 80% of your property's current value without incurring lenders mortgage insurance. If your home is valued at the current median and you owe $400,000, you could potentially access around $150,000 to $200,000 in usable equity, depending on the valuation outcome and your existing loan balance.
The calculation involves subtracting your current loan from 80% of the property value. The remaining amount, minus any costs associated with the refinance process, becomes the equity you can draw down. Not all of this needs to be accessed at once. You can structure the loan to draw only what you need immediately and leave the remainder available if required later.
Camberwell's established housing stock and proximity to private schools like Camberwell Grammar and Methodist Ladies' College means many families in the area are already considering education funding options. Equity release through refinancing offers a tax-effective alternative to selling investments or drawing down superannuation early.
What Are the Costs Involved in Refinancing to Access Equity?
Refinancing involves application fees, valuation fees, and potential discharge costs from your existing lender. Application fees typically range from $300 to $600, though some lenders waive this during promotional periods. Valuation fees are generally between $200 and $400, depending on property type and location. Discharge fees from your current lender can range from $150 to $350.
Legal fees for settlement are usually around $800 to $1,200 in Victoria. If you are increasing your loan above 80% of the property value, lenders mortgage insurance will apply, which can add several thousand dollars to the upfront cost. Staying within the 80% threshold avoids this additional expense.
These costs are often capitalised into the new loan, meaning they do not require separate upfront payment. However, capitalising costs increases the total loan amount and the interest payable over the life of the loan. Whether to pay costs upfront or add them to the loan depends on your cash flow and how you intend to manage the additional borrowing.
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Should You Fix or Keep the Rate Variable After Refinancing?
If you are drawing equity specifically for a large, one-off education expense such as overseas university fees, splitting the loan can provide certainty on the portion used for education while maintaining flexibility on your original borrowing. A fixed rate locks in repayments on the equity portion, which is helpful if you want predictable budgeting over the course of a degree.
Variable rates allow additional repayments without penalty and provide access to offset accounts, which can reduce interest if you deposit other savings or income into the account. This is particularly useful if you receive periodic bonuses, rental income, or plan to make lump sum repayments as financial circumstances allow.
Consider a scenario where a family refinances to access $100,000 for a three-year international degree. Fixing that portion at the time of drawdown means the repayment remains stable even if rates rise during the study period. The remaining loan can stay variable, preserving the ability to make extra repayments from ongoing income without restriction.
How Does Refinancing for Education Affect Your Tax Position?
Interest on funds borrowed for personal use, including education, is not tax deductible. This differs from investment lending, where interest can be claimed as a deduction against rental or investment income. Refinancing to access equity for education increases your non-deductible debt, which has implications for your overall tax efficiency.
If you hold other investment loans or plan to borrow for investment purposes in future, keeping education debt separate from investment debt preserves the ability to claim deductions on the investment portion. This is best managed through loan splits at the time of refinancing, where one split is used exclusively for education and the other remains linked to any deductible purpose.
Camberwell homeowners often hold multiple properties or investment portfolios alongside their family home. Structuring the refinance to maintain clear separation between deductible and non-deductible debt ensures compliance and maximises tax outcomes. Your accountant should review the proposed structure before proceeding, particularly if you have complex income sources or plan further property acquisitions.
What Documentation Do Lenders Require for Equity Release?
Lenders assess your ability to service the increased loan amount based on current income, existing liabilities, and living expenses. You will need recent payslips, tax returns if self-employed, and statements for any other loans or credit commitments. If you are accessing equity for a child's education, some lenders may request evidence of the education expense, such as a letter of offer or fee schedule from the institution.
Property valuation is arranged by the lender and determines how much equity is available. If the valuation comes in lower than expected, the amount you can access reduces accordingly. In areas like Camberwell, where property values have appreciated steadily, valuations generally align with recent sales data, but older homes or those requiring renovation may be assessed more conservatively.
Serviceability is calculated using current interest rates plus a buffer, typically around 3%. This means lenders assess whether you can still afford repayments if rates rise. If your income is stable and you have minimal other debt, serviceability is rarely an issue. If you have recently changed employment, are on a contract, or have other significant financial commitments, the assessment becomes more detailed.
When Is Refinancing for Education Not the Right Option?
If you are within two years of retirement or planning to downsize in the immediate term, increasing your home loan may not align with your broader financial goals. Similarly, if your current loan has a low fixed rate that does not expire soon, breaking the fixed term to refinance can incur break costs that outweigh the benefit of accessing equity.
Families who have already borrowed close to 80% of their property value may find the amount of accessible equity is insufficient to cover education costs, or that accessing it pushes the loan above 80%, triggering lenders mortgage insurance. In these situations, alternative funding options such as education loans, scholarships, or phased payment plans may be more appropriate.
Refinancing also requires a commitment to higher ongoing repayments. If your budget is already constrained or you anticipate changes to household income in the near term, the additional debt servicing may place pressure on cash flow. A loan health check can clarify whether refinancing fits within your current financial capacity or whether adjustments are needed before proceeding.
Call one of our team or book an appointment at a time that works for you. We can review your equity position, compare current refinance options, and structure a solution that aligns with your education funding needs and long-term financial objectives.
Frequently Asked Questions
How much equity can I access from my Camberwell home for education costs?
Most lenders allow you to borrow up to 80% of your property's current value without lenders mortgage insurance. The accessible equity is the difference between 80% of your property value and your current loan balance, minus refinancing costs.
Is interest on funds borrowed for education tax deductible?
No, interest on funds borrowed for personal use, including education, is not tax deductible. This differs from investment lending where interest can be claimed as a deduction against rental or investment income.
What costs are involved in refinancing to release equity?
Refinancing typically involves application fees, valuation fees, discharge costs from your existing lender, and legal fees for settlement. These costs can often be capitalised into the new loan rather than paid upfront.
Should I fix or keep my rate variable after refinancing for education?
Fixing the portion used for education provides repayment certainty, which is helpful for budgeting over the course of a degree. A variable rate allows additional repayments and access to offset accounts, which can reduce interest if you have other savings.
When is refinancing for education not the right option?
Refinancing may not suit those within two years of retirement, planning to downsize soon, or with low fixed rates that have not yet expired. Break costs and insufficient equity can also make refinancing unviable in some situations.
