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.
Explore other FAQs and Facts
7 steps to increase your borrowing power
Borrowing power can vary significantly based on financial circumstances and lender choice. While two friends with similar profiles might get approved for different amounts, you can take steps to potentially increase your borrowing power. These steps include reducing expenses, increasing income, reducing debt, lowering credit card limits, improving your credit score, saving a larger deposit, and consulting a broker.
How redraw facilities and offset accounts can save you money
Offset accounts and redraw facilities both reduce the interest on your home loan by applying extra funds. Redraw facilities lower interest while providing conditional access to your money. Offset accounts, acting like savings accounts, offer easier access and higher interest savings, despite potential fees. Choose based on your need for fund accessibility and flexibility.
Federal Budget 24/25 – what does it mean for you?
Discovering the impact of the 2024/2025 Federal Budget is vital in navigating the current economic landscape. With a focus on addressing the cost-of-living crisis and bolstering the construction sector, measures such as infrastructure investment, rent assistance, and tax cuts aim to alleviate financial burdens and stimulate growth.
How a broker guides your way to owning your first home
Dreaming of your first home? A mortgage broker can be your guiding light. From assessing your borrowing capacity to breaking down costs and exploring deposit options, they make the journey smoother. With their expertise, owning your dream home in Australia becomes not just a dream, but a tangible goal.
5 things to keep in mind before refinancing
Considering refinancing your home loan? While securing the lowest interest rate is tempting, it’s vital to assess beyond that. Lenders vary in serviceability criteria, fees, turnaround times, and lending criteria. Additionally, explore promotions and consider restructuring your loan for optimal outcomes. Learn 5 key factors to save time and money.
How to calculate your equity
If you’ve owned your home for some time, you likely have built up equity—a valuable asset. Equity represents the difference between your home’s value and what you owe on your mortgage. Understanding this figure can empower you financially and open up opportunities for leveraging your home’s value.
7 ways to maximise your returns as a property investor
If you’re looking to maximise returns as a property investor, strategic decisions are key. From choosing the right location to savvy renovations, each step impacts your bottom line. And don’t forget about refinancing—regularly reviewing your home loan could unlock significant savings.
March cash rate held – why are buyers feeling more confident?
Following the Reserve Bank of Australia’s decision to keep the cash rate steady at 4.35%, there’s speculation about future cuts amid economic indicators showing weakness. However, rising buyer confidence and strong property growth, especially in housing, continue to drive the market forward.
When was your last home loan health check?
Is your home loan still serving you as it should? Over time, circumstances shift, potentially rendering your loan less than ideal. A home loan health check, conducted by your finance broker, ensures your loan remains competitive and aligned with your needs. It’s a stress-free process, offering potential savings and improved features, all at no cost to you.
What happens when your fixed rate term ends?
Fixed rate terms, typically lasting one to five years, define your loan’s interest stability. As this period concludes, your loan may shift to a variable rate unless you opt otherwise. Prepare by discussing potential rates and options with your mortgage broker. Consider repricing or refinancing for better terms, mindful of associated costs.