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 the equity in your existing home can be a great way to help purchase another property without needing to save the entire deposit in cash.
If your property has increased in value or you have paid down a significant portion of your home loan, you may be able to access some of that equity to help cover the deposit and purchasing costs for your next property.
For example, the available equity could potentially be used towards the deposit, stamp duty and other costs associated with purchasing an investment property or another home.
It is important to structure the lending correctly. Depending on your circumstances, the loans can often be kept separate rather than having both properties tied together under the same loan structure. This can provide greater flexibility if you decide to sell, refinance or make changes to one of the properties later.
You will still need to meet the lender's borrowing capacity and lending requirements before accessing equity.
Calculating equity
Equity is the difference between the current value of your property and the amount you still owe on your home loan.
For example, if your property is worth $500,000 and your remaining home loan is $300,000, you have $200,000 in total equity.
Usable equity is the portion of that equity you may be able to access for another property purchase. In many cases, lenders will allow you to borrow up to a maximum of 80% of your property's value without requiring Lenders Mortgage Insurance (LMI).
Using the example above, 80% of a $500,000 property is $400,000. If your existing loan balance is $300,000, your estimated usable equity would be approximately $100,000 ($400,000 less $300,000).
This means that although you have $200,000 in total equity, only around $100,000 may be available to use while keeping the total lending secured against the property at an 80% Loan-to-Value Ratio (LVR). The actual amount you can access will still depend on the lender's valuation, lending policy and your borrowing capacity.
Your usable equity may increase over time as you reduce your home loan and/or your property's value increases.
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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