Using Equity to Purchase Another Property
A practical pathway to buy your next property when you have servicing capacity and sufficient equity.
How using equity works
Using equity to purchase another property is a scenario I come across quite a lot. It is a great way to buy another property if you don’t have the deposit but can service the loan and assuming you have enough equity in your house.
When you use this structure you need to understand the two properties and loans are now linked together as one. You cannot do anything with either property without the other property being involved.
Calculating equity
To work out how much equity you have in your property, subtract any debt remaining on your mortgage from the property’s overall value. For example, if your property is worth $500,000 and you have $300,000 left on your mortgage, your equity is $200,000.
Your equity can increase both as you pay down your mortgage and as the property’s value rises. If a $500,000 property increases by 10% in 12 months (an extra $50,000) and you’ve reduced the loan balance through repayments, your usable equity has grown further.
Key points to consider
- Usable vs. total equity
Most lenders cap usable equity so your total LVR stays within policy (often up to 80% without LMI). - Cross-collateralisation
Linking properties can limit flexibility. Separate securities can sometimes be a better structure depending on goals. - Cash flow & buffers
Stress-test repayments, rate rises, and vacancy. Maintain an emergency buffer. - Tax & loan purpose
Interest deductibility depends on loan purpose. Get tax advice before proceeding.
Quick example of usable equity
Assume current value $800,000 and current loan $420,000. At an 80% LVR cap, maximum lend against this property is $640,000. Usable equity is therefore approximately $640,000 − $420,000 = $220,000 (subject to lender policy, serviceability, and valuation).
Equity Calculator
Enter your estimated value and current balance to see your total and usable equity (assumes 80% LVR, no LMI).
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