Using Your Equity to Buy Your Next Property: How It Works
If you’ve owned your home for a few years, there’s a good chance it’s worth more than what you still owe on the mortgage. That difference is your equity. And for many homeowners, it can be a useful way to fund their next property purchase without having to start saving for a deposit all over again.
It sounds simple: use the equity you’ve built in your property to help fund your next move. But it’s not quite that straightforward. There are limits on how much equity may be accessible, lenders still need to assess your borrowing capacity, and increasing your loan can materially change your repayments.
What Equity Actually Means
Equity is the difference between your property’s current value and what you still owe on the home loan.
If your property is worth $900,000 and your loan balance is $500,000, you have:
$400,000 in total equity.
But that does not mean you can automatically borrow another $400,000.
“A common way to estimate usable equity is to take 80% of the lender-assessed property value and subtract the existing loan balance. Some lenders may allow higher LVRs, but this can involve LMI and other lending considerations.”
Using the same example:
- Property value: $900,000
- 80% benchmark: $720,000
- Existing loan balance: $500,000
- Estimated usable equity: $220,000
The portion a lender would typically consider available for your next purchase.
Why 80% Is a Common Equity Benchmark
Lenders keep a buffer for a reason. If property values fall, that buffer protects both you and the bank from being left with a loan larger than the property is worth. An 80% LVR is a common benchmark because borrowing above this level may result in Lenders Mortgage Insurance (LMI), depending on the lender and loan. LMI can add a significant cost to a loan, so it’s worth understanding the implications before deciding how much equity to access.”.
This is worth understanding early. Some homeowners assume they can use every dollar of equity they’ve built. In reality, the usable portion is often meaningfully smaller, and pushing past 80% can add thousands in LMI.
How the Equity Actually Gets Used
Accessing equity for your next property usually happens in one of two ways: refinancing your current loan to increase the limit (sometimes called a top-up), or setting up a separate equity loan against your home. Either way, the equity itself isn’t handed to you as cash sitting in your account. It becomes available through additional borrowing, with the funds generally made available when required for the intended purpose, subject to lender approval and the loan structure.”
If you’re buying your next home before selling your current one, timing can get tricky. This is where bridging finance can help. It gives you short-term access to funds, allowing you to buy your next property without having to wait for your current home sale to settle.
Equity Isn’t the Only Factor Lenders Look At
Having usable equity doesn’t automatically mean a lender will approve the additional borrowing. Equity affects how much deposit you can bring, but you still need to meet the lender’s serviceability requirements: income, existing debts, living expenses, and repayments on both loans. This is one of the more common misunderstandings: strong equity doesn’t override weak borrowing capacity. The two are assessed separately, and both need to stack up.
It’s also worth remembering that your home’s value is based on a lender’s valuation, not what you think it might sell for. Valuations can come in lower than expected, which reduces the equity figure lenders are willing to work with, “It’s also worth remembering that your home’s value is based on a lender’s valuation, not what you think it might sell for. Valuations can come in lower than expected, which can reduce the amount of equity a lender is willing to recognise.”
What to Consider Before Moving Forward
A few practical things worth thinking through before you approach a lender:
- How the increased loan amount affects your repayments, particularly if interest rates move.
- Whether you’re comfortable holding two properties and the associated borrowing simultaneously, even briefly, if buying before selling.”
- Whether the new borrowing should be kept as a separate loan split, particularly where the funds are being used for investment purposes.
- The upfront costs involved, including any valuation fees, legal costs, and potential LMI if you’re borrowing above 80% LVR.
Where a Mortgage Broker Fits In
Working out your usable equity is only part of the picture. A broker can confirm what a lender is likely to approve based on your actual servicing position, not just the equity on paper, and can compare how different lenders treat equity release, since policies vary. This is useful whether you’re moving to a bigger family home through our Next Home support or using equity to fund an investment property instead.
If your current loan hasn’t been reviewed in a while, it’s also worth checking whether refinancing alongside the equity release could improve your rate or structure at the same time.
Equity can be a genuinely useful way to fund your next property, but it comes with real limits, real costs, and a separate serviceability test that has to be met regardless of how much equity you hold. Understanding the difference between your total equity and what’s actually usable is the first step to knowing where you stand.
If you’re weighing up whether your current equity position supports a move, it’s worth having a proper look at the numbers before you start house-hunting. You can book a free consultation with us at SafeHaven Finance for a straightforward conversation about your borrowing position and what your options might look like, or follow along on Facebook, Instagram, and LinkedIn for more lending insights.
