How to use equity to purchase property
Your home equity is the difference between your property’s market value and the amount you owe on your mortgage. For example, if your home was worth $800,000 and your mortgage balance was $500,000, you’d have $300,000 in equity.
How do I access equity in my home?
To access your equity, you need to refinance or apply for a loan with your existing lender. However, not all your equity is usable equity.
Lenders typically allow you to borrow up to 80% of your property’s value, minus your remaining mortgage balance. So based on the hypothetical scenario above, you could potentially access up to $140,000 in usable equity:
$800,000 x 80% = $640,000, minus $500,000 owed = $140,000.
What are the benefits of using equity for a property investment?
- No need for a cash deposit – You can use equity instead of saving for a deposit.
- Wealth-building opportunity – Investing in property can help you build long-term wealth through capital growth and rental income.
- Leverage – Using equity allows you to invest without using personal savings.
- Potential tax benefits – Interest on an investment loan may be tax-deductible (although please consult a tax professional for advice).
What are the risks of cashing out equity?
- Increased debt – Borrowing against your equity means taking on additional debt, which must be managed carefully.
- Higher repayments – A larger loan can result in higher mortgage repayments.
- Market fluctuations – If property values fall, you could end up with lower equity or even negative equity.
- Lender restrictions – Lenders may have strict conditions on how much equity you can access.
How to borrow against your equity
When accessing equity, you can choose between:
- Line of credit – A flexible option where you can draw funds as needed. This can be useful for ongoing investment costs but requires discipline to avoid excessive borrowing.
- Lump-sum loan – A one-time increase in your mortgage, typically used for a property purchase or significant renovations. This provides certainty in loan repayments but requires careful budgeting.
What are the steps involved in using equity to buy an investment property?
The first step is to speak to a mortgage broker, who will determine how much usable equity you have, while informing you about your loan options and borrowing capacity. If you decide to proceed, your broker will help you get a pre-approval.
From there, you need to find the right property and then complete the purchase – just as you would in a standard home loan scenario.
Licensing statement: Rayne Finance ABN [70 605 100 838] is authorised under LMG Broker Services Pty Ltd Australian Credit Licence 517192. Disclaimer: (1) As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should, before acting in reliance upon this information, seek independent professional lending or taxation advice as appropriate and specific to your objectives, financial circumstances or needs. This publication is provided on the terms and understanding that: (2) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication. (3) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to the maximum extent permitted by the law to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
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