Understanding equity

You don’t need to have paid off your home loan before investing in property.

Equity is an important concept to understand if you’re considering buying an investment property. 

What is equity?

The equity is the difference between the value of your property and the amount you owe on it.

For example, if your home is valued at $650,000 and you have $300,000 remaining on your mortgage, the equity in your home is $350,000.

You can use the equity in your home as a deposit or security when purchasing an investment property.

Total equity vs usable equity

Most banks will typically lend up to 80% of the value of your home (without needing lenders mortgage insurance) less the amount you owe on it. This is your usable equity.

Using the example above, 80% of a property valued at $650,00 is $520,000. Minus the $300,000 still owing on the mortgage equals $220,000. 

Therefore, the usable equity in this property is $220,000 and can be used to help fund your next property.

How do I use the equity my home?

Talk to your bank about refinancing to understand your options for accessing the equity in your home.

The bank will take in to account your income, age, outstanding debts and several other factors to determine whether you’re able borrow against your equity.

How can I increase my equity?

It takes time to build equity but there are a few things you can do to help:

  • Renovations such as a new kitchen or bathroom can increase the value of your property. 
  • Making extra mortgage repayments. 
  • Have your property revalued when markets are high to take advantage of capital growth.

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person’s particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs. You should obtain and consider the Product Disclosure Statement or terms and conditions relating to the products mentioned, before deciding whether to acquire any products.