Tap into the power of equity to invest in property

Equity is one of the most powerful tools you have to start building a solid property portfolio.

Many homeowners mistakenly believe that they have to pay off their home loan before they can start investing in property.

Even if you bought your home in the past year, you might already have enough equity to use as a deposit for your next purchase.

Want to leverage your home equity now?

Your equity is your untapped wealth. By unlocking it, you’re able to use it for the following:

  • As a deposit: You can use equity in your property as a deposit against an investment loan. If you have enough equity, you can borrow 80% of the property value without using your own cash.
  • To take out a line of credit: You can structure your home equity loan using a line of credit. Based on your equity, you will be approved with a certain amount of credit. You will only have to pay interest on the portion you’ve spent. You can also combine this with an offset account to reduce the interest on your loan.
  • Deposit bonds: Instead of using equity as a cash deposit, you can use it as a deposit bond or guarantee. This is generally the case if you’re buying off-the-plan with a 12 to 24 month settlement. It also generates interest as it sits in a bank account while awaiting settlement.
  • Renovations: If you don’t have enough equity to buy an investment property, you can instead use it to renovate your existing property. You can then turn your home into an investment and begin your investment journey.

We can help! Call us on 1300 889 743 or complete our free assessment form to discuss your investment plans with one of your expert mortgage brokers.

What is equity and how can you build it quickly?

Simply put, equity is the difference between the current value of your property and the amount you owe against it. For example, if your property is currently valued at $600,000 and your mortgage is now down to $400,000, you now have $200,000 in equity that you can potentially access.

Equity takes time to build but there are a few things you can do to ramp it up quickly.

You can do cosmetic renovations to significantly boost your equity.

A new kitchen or bathroom and a lick of paint could dramatically lift the value of your property. Just make sure that you plan and budget well to avoid overspending.

You can also look at making extra repayments to reduce your mortgage quickly. The more you pay, the more equity you build in your property.

If you’ve just settled on a home loan you may not have enough equity yet. However, if your home loan was for 80% Loan to Value Ratio (LVR) or less, and you’ve started making mortgage repayments, you will have access to some equity very soon.

Once you’ve accumulated sufficient equity, you may be able to use it for:

  • Maintenance and renovations for your property.
  • Buying an investment property or your second home.
  • Other investments such as shares and managed funds.
  • Improving your lifestyle such as buying a new car or going on a family vacation.

How can you access your hidden wealth?

If you’re planning to use equity to buy an investment property, you’ll need to get a property valuation report first. This is to find out how much equity you have in your home. If you’ve lived in your home for more than five years, you probably have considerable equity in it.

It’s important to note that when it comes to equity, there’s accessible equity and there’s useable equity.

Accessible equity is the amount you can potentially access. Using our previous example, if your home is currently valued at $600,000 and you have $400,000 outstanding mortgage on it, your accessible equity is $200,000.

However, the banks only lend to 80% of the current valuation less than the current mortgage. This is also known as your useable equity.

So the amount you can borrow against then becomes: $600,000 x 80% – $400,000 = $80,000

As you can see, it’s significantly lower than the $200,000 available equity, but it’s still a hefty amount that you can use to fund your deposit.

When assessing your application banks will take into account your income, the number of children you have, current debts and many other factors to determine the amount of equity they accept.

Typically, lenders can accept up to 80% of the equity on an existing property. If this amount can sum up to 20% of the value of the investment property then you can avoid paying Lenders Mortgage Insurance (LMI).

LMI is one-off fee that lenders generally charge if you borrow more than 80% LVR. It can amount to thousands of dollars so you’d be best to avoid it if you can.

We have mortgage brokers who specialise in investment loans and can get you an upfront property valuation for both your home as well as your investment property.

You can discuss your situation and loan needs with one of our credit specialists by calling us on 1300 889 743 or get a free quote within 24 hours by completing our free online assessment form today.

Beware of the traps when accessing your equity

Using the equity of your own home to buy an investment property carries some risks. If you don’t use your equity wisely, you could end up losing your home. Or worst, you could lose both your home and your investment property.

Here are some tips to help you maximise the power of your equity safely:

  • Make sure you maintain a sufficient buffer. If you don’t have spare funds aside from the equity in your home, don’t use all of it to invest in property. This will help you prevent having to borrow money in the event of an emergency.
  • Repay the home loan on your home as fast as possible before focusing on the investment. This way, you’ll have access to more equity and can use it if needed.
  • Educate yourself about investing in property. It’s a huge financial commitment so ensure you pick a good property in a high growth area.
  • Speak with a professional financial advisor to understand your options. They can help you understand how much equity you can access and if using equity to buy an investment property is a viable option for you.

Please note that the above must not be taken as financial advice. This is general information only and you should seek out relevant and independent professional advice before making a financial decision.

  • Natalie GG

    What about ‘cash out’? I’ve heard and read the term being used by banks here and there. Is this referring to equity too?

  • Hey there, Australian lenders use the term ‘cash out’ to describe the action of a borrower releasing equity from property they own using a home equity loan. So yes, it is referring to equity being cashed out to help secure a mortgage.

  • Henderson

    If I have enough equity in my home, can I use it to secure a line of credit to buy an investment property?

  • Yes Henderson, you can structure your home equity loan using a line of credit. Approval as well as the credit limit / amount will depend on how much equity you have in your property. You will only have to pay interest on the portion you’ve spent. You can also combine this with an offset account to reduce the interest on your loan.

  • clyde

    We are looking at buying an investment property for around 380000-400000 and we have 120000 in equity. We are 2 applicants with 1 child. Can you help finance?

  • Yeah sure, please email us your details at info@homeloanexperts.com.au or call 1300 889 743 and discuss it in detail with one of our investment property loan specialists.

  • Athan

    hi im wanting to know which banks actually accept equity as a deposit for a new loan?

  • Hi Athan,
    Most of them do accept equity as a deposit for a home loan but your loan amount needs to be usually less than 90% of the property value. Call us on 1300 889 743 or enquire online https://www.homeloanexperts.com.au/free-quote/ and one of our mortgage brokers will help you on this.

  • Robert K

    Hi, i purchased a property with only 10% down. My bank wont give me a better interest rate because of this but its been a few years now and so i believe that my deposit plus my repayments and the increase in value with my property would now mean that there is less than 80% of propertys value owing. If i was to get the bank to value my home and it came back as though i do infact owe less than 80% of its worth, would this be sufficent to tell other banks that i have less than 80% owing and therefore they can give me a better rate and that i wont have to pay lmi on a new loan?

  • Hi Robert,
    Yes, owing less than 80% of the property value will allow you not to pay any Lenders Mortgage Insurance (LMI) and could get you a better interest rate with other lenders as well. We have a panel of almost 40 lenders and we can assist you to get a better interest rate. Call us on 1300 889 743 or fill our online assessment form https://www.homeloanexperts.com.au/free-quote/ and find more about your options.

  • Mirana

    Hi, I’m looking to use the equity in my investment property as a deposit to buy another property. When I use an online home loan calculator, it tells me that I can only borrow around $260k but these are not using the equity. Am I missing something here?

  • Hi Mirana,
    The equity doesn’t affect your borrowing power, it is only for the deposit. You’ll still need to prove that you can service both the new and existing home loan amount with your current income. The borrowing power depends on your income and expenses (liabilities). As your borrowing power can vary widely due to the assessment method used by banks, we can work with you to get the amount you need. You can also use our borrowing power to get an estimate of ‘how much you can borrow’: https://www.homeloanexperts.com.au/mortgage-calculators/borrowing-power-calculator/

  • Todd fowles

    My friend won a million dollar apartment in one of them charity lottos last year and has used the equity to buy a house worth 700,000. What loan would he have? Can you only use the equity for the deposit?

  • Hi Todd,
    Yes, you can use the equity (cashout) for the deposit. Typically, you can cash out up to 80% of the property value ($800,000) as usable equity to invest. So theoretically, he could have bought the property outright; or with a 5% deposit. There’s no way for us know.

  • Dee

    Hi. I own a house with my dad (50/50). Value of house is $750k, we purchased in 2012 for $520k. He owes $120k and I owe $150k. This is leased at $600 per week. The CBA said we had over $400k equity.

    Im now keen on buying a new apartment value approx $650k (and would be able to use NSW FHOG).

    I dont know how equity works. At the risk of sounding naive, am I able to use the $400k equity as deposit on the apartment thus making my loan balance only $250k?

    Thanks, Dee.

  • Hi Dee,
    You’ll be able to access your share of the available equity. Ideally, you want to cash out up to 80% of the property value so you don’t have to pay the lender’s mortgage insurance (LMI) fee. However, you can cash out up to 95% of the property value with LMI (with select lenders only).

    That means when accessing up to 80% of the property, the total accessible equity is $330,000 ($600,000 less the already existing mortgage of $270,000). However, you can’t access the full available equity, it depends on what percentage of the investment property you own. For example, if your share of the property is 50%, you can access 50% of $330,000 which is $165,000 to use as a deposit on the new property. Lenders may want written evidence listing the purpose of the cash-out. A statutory declaration saying “intends to invest in property in the future” is considered acceptable evidence.

  • Dee

    Thank you so much for the info. Am curious can my father give me his half of the equity somehow? He said he would if he could. Im doubtful.

    Thanks, Dee.

  • Hi Dee,
    He should be able to access his share of the equity with a cashout. The only caveat I see is under the new banking code of practice (2019), banks need to establish substantial benefit for the cashout. As the primary purpose of the cashout is for your sole benefit. However, our specialist mortgage brokers can help you find an alternative lender that’s willing to help. Please give us a call on 1300 889 743 or fill in our online assessment form:https://www.homeloanexperts.com.au/free-quote today.