Many homeowners have heard the term equity, but aren’t entirely sure what it means or how it can help them purchase an investment property.
The good news is that if you’ve owned your home for a few years, there’s a good chance you’ve already built equity without even realising it.
Understanding how equity works is often the first step towards buying your first investment property without needing years of additional savings.
Investment Property Series
Understanding how equity can be used to purchase an investment property can help you build wealth sooner and avoid unnecessary delays.
Available guides:
✅ How Much Equity Do I Need to Buy an Investment Property?
✅ Can I Buy an Investment Property Without Using My Savings?
✅ Can I Use Equity Instead of a Cash Deposit?
✅ How Does Equity Work When Buying an Investment Property?
✅ Using Equity to Buy an Investment Property (Complete Guide)
What Is Equity?
Simply put, equity is the difference between what your property is worth and what you still owe on your home loan.
For example:
- Property value: $900,000
- Home loan balance: $500,000
Your total equity would be $400,000.
As you pay down your home loan and your property’s value increases over time, your equity generally grows.
However, it’s important to understand that total equity and usable equity are not the same thing.
What Is Usable Equity?
Usable equity is the portion of your home’s value that you may be able to borrow against.
Most lenders will allow you to borrow up to 80% of your property’s value without paying Lenders Mortgage Insurance (LMI).
Using the same example:
- Property value: $900,000
- 80% of property value: $720,000
- Existing home loan: $500,000
This leaves approximately $220,000 of usable equity, subject to lender approval and your borrowing capacity.
This usable equity may then be used to help fund the purchase of an investment property.
How Can Equity Be Used?
Depending on your circumstances, equity may be used towards:
- The investment property deposit
- Stamp duty
- Legal and conveyancing costs
- Loan establishment costs
- Other eligible purchasing expenses
For many homeowners, this means they can purchase an investment property without needing to save another large cash deposit.
Does Using Equity Mean Refinancing?
Not always.
The way equity is accessed will depend on your current lender and your overall lending strategy.
Possible options include:
- Increasing your existing home loan
- Creating a separate loan split
- Refinancing to another lender
- A combination of the above
The right approach will depend on your goals, borrowing capacity and future investment plans.
Does Using Equity Increase My Home Loan?
Yes.
When you access equity, you are borrowing additional funds secured against your existing property.
This means your overall home loan balance will increase.
However, many investors choose this strategy because it allows them to leverage the value already built in their home to purchase another property sooner.
Like any lending decision, it’s important to ensure the additional repayments remain affordable.
Do You Need a Property Valuation?
Usually, yes.
Before allowing you to access equity, the lender will generally arrange a valuation to determine your property’s current market value.
The valuation helps establish:
- How much equity is available
- Your maximum lending limit
- Whether the proposed loan fits within policy
Sometimes this can be completed electronically, while other situations may require a physical inspection.
Do Banks Still Assess Your Income?
Absolutely.
Having enough equity is only one part of the assessment process.
Lenders will also review:
Even if you have substantial equity available, you still need to demonstrate that you can comfortably afford the additional lending.
If you’d like to understand how lenders assess these areas, read our Home Loan Assessment Series.
Common Equity Myths
“My House Has Gone Up in Value, So I Can Borrow All of It”
Not quite.
Lenders generally limit borrowing to a percentage of your property’s value, meaning not all equity is available to access.
“Using Equity Means Selling My Home”
Not at all.
You continue to own and live in your property as normal.
Using equity simply means borrowing against part of the value you’ve already built.
“If I Have Equity, I’ll Automatically Be Approved”
Unfortunately, no.
Lenders also assess your borrowing capacity, income, existing debts and overall financial position before approving additional lending.
Why Work With a Mortgage Broker?
Understanding how equity works is only the first step.
A mortgage broker can help you:
- Calculate your usable equity
- Arrange property valuations
- Compare lender policies
- Structure your lending correctly
- Maximise borrowing capacity where appropriate
- Develop a strategy for future investment purchases
Getting the structure right today can make it much easier to continue building your property portfolio in the future.
The Bottom Line
Equity is one of the most powerful tools available to homeowners looking to purchase an investment property.
Many Australians already have enough usable equity to take the next step without realising it.
The key is understanding how much equity is available, whether your borrowing capacity supports another purchase and choosing the right loan structure for your long-term goals.
We Can Help You Make the Right Move
Budget announcements can create uncertainty, especially when housing, lending and property investment are involved.
Whether you are buying your first home, reviewing your current lending or planning your next investment purchase, understanding how these changes may affect your borrowing position is important.
We can help you assess your options and build a strategy that suits your goals and circumstances.
Book a strategy session:
Book an Appointment with Shoreline Lending
Visit our website:
Shoreline Lending
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@shoreline_lending
You can also contact us directly at:
hello@shorelinelending.com.au
(02) 4319 8173