Home equity vs equipment finance: risks and costs

Key Takeaway

Using home equity for business equipment can slightly reduce the headline interest rate, but when stretched over 25–30 years it often results in 2–4 times more total interest than a 3–7 year equipment loan, while putting the family home at risk. In a backdrop where over 30% of Australian mortgage holders are already ‘At Risk’ of stress, concentration risk on the home matters. Business owners should generally prefer stand‑alone equipment finance and only use home equity in short, clearly defined splits with conservative LVRs.

Using home equity for business equipment can look cheaper on paper, but it usually loads risk onto your home and can cost more over the life of the asset than a 3–7 year equipment loan. In most cases, stand‑alone equipment finance is safer, and home equity should only be used sparingly, on short terms, with conservative LVRs and a clear exit plan.

Comparison of home equity versus equipment finance for business equipment Home equity can lower the rate but increase risk; equipment finance ring-fences business debt from your home.

Quick comparison: home equity vs equipment finance

Home equity (cash‑out from your mortgage)

Security: your house (or investment property).
Term: often 20–30 years unless you deliberately shorten it.
Rate: usually lower headline rate than equipment loans.
Risk: if the business fails, the lender can pursue your home.

Dedicated equipment finance (e.g. chattel mortgage, lease, hire purchase)

Security: mainly the equipment itself, sometimes plus director guarantee.
Term: typically 3–7 years, aligned to the asset’s working life.
Rate: usually higher than a home loan, but for a much shorter term.
Risk: business risk mostly ring‑fenced away from your home.

Worked example: $120,000 machine

Assume:

Home‑loan rate: 6.2% p.a., 25‑year term (P&I).
Equipment loan: 8.5% p.a., 5‑year term (P&I, no balloon).

If you use home equity:

Monthly: about $790.
Total repaid over 25 years: ~$236,900.

If you use equipment finance:

Monthly: about $2,460.
Total repaid over 5 years: ~$147,600.

Even with a lower rate, the long home‑loan term means you pay roughly $90,000 more interest and are still paying for the machine long after it’s worn out. This matches what we see in practice: rolling equipment into 25–30 year home loans often multiplies total interest by two to four times.

Frequently asked questions

Is it cheaper to use my home loan for business equipment?▾

The headline rate on a home loan is usually lower than an equipment loan, but the much longer term often means you pay far more total interest. Spreading a 5‑year asset over 25–30 years can multiply total interest by two to four times. You also take on higher risk because the debt is secured against your home instead of mainly against the equipment.

When does it make sense to use home equity for equipment?▾

It can make sense when your property LVR stays under roughly 70–75%, the amount is modest, and the loan is in a short, clearly labelled split that matches the asset’s life. It’s also more defensible if equipment finance genuinely isn’t available or is prohibitively expensive. Even then, you should have a clear exit plan to move the debt off the home within a few years.

Is dedicated equipment finance tax deductible compared to using my mortgage?▾

For business use assets, interest on a correctly structured equipment loan is generally deductible, and the asset itself is depreciated according to ATO rules. Interest on a home‑loan split used for business is also usually deductible, but only if it’s clearly traceable and documented. Dedicated equipment finance often makes tax reporting cleaner because the loan is solely for business and separate from personal borrowings.

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Should You Tap Home Equity Or Use Equipment Finance?