- If you have equity in your home, you may be able to access it to use toward a deposit for another property
- Your usable equity is usually about 80% of the value minus the outstanding loan amount without requiring LMI
- The lender will also assess the serviceability of the loan to check you can meet repayments
If you’ve owned your home for several years, you may have built up equity that could help you buy another property without needing to save an entirely new deposit.
Equity is the difference between your property’s current market value and the amount you owe on your mortgage.
For example, if your home is worth $900,000 and you owe $500,000, you have $400,000 in equity.
However, that doesn’t mean you can necessarily borrow the full $400,000.
Here’s how the process generally works when using equity to buy a second property.
- Calculate your usable equity
Lenders will often let you borrow up to 80% of your property’s value, minus your outstanding mortgage, without requiring lenders mortgage insurance (LMI).
Using the example above, 80% of $900,000 is $720,000. Subtracting the $500,000 mortgage leaves $220,000 in potentially usable equity.
- Check your borrowing capacity
Having sufficient equity is only part of the equation.
Your lender will also assess your income, living expenses, existing debts and ability to manage additional repayments.
- Decide how to access your equity
One option is to increase your existing home loan. Another is to refinance with a different lender and release some of your equity.
You may also be able to establish a separate loan split, helping you keep the borrowing for each property distinct.
- Work out your purchasing budget
Your available funds will need to cover more than the deposit.
Remember to factor in stamp duty, legal fees, inspections and other purchasing costs.
If you’re buying an investment property, you’ll also need to consider ongoing expenses such as maintenance, insurance and periods without rental income.
What are the risks?
Using equity means taking on additional debt, so it’s important to consider what could go wrong.
Higher interest rates could increase repayments, while falling property values could reduce your equity. You may also face financial pressure if your income falls or unexpected expenses arise.
Depending on how your loans are structured, your existing home could also be at risk if you cannot meet your repayments.
Your existing property could help fund your next purchase, but it’s important to understand the financial implications. Find out more about your options with a free chat with a Loan Market broker.
