If you already own a home, you might be closer to your next property than you think.
Many homeowners assume they need years to save another deposit. In reality, the value you have built in your current property could help you move sooner. This is where equity becomes powerful.
This guide walks you through how equity works, how you can use it, and what to consider before taking the next step.
What Is Equity?
Equity is the difference between your property’s current value and what you still owe on your home loan.
For example:
Property value:
$800,000
Remaining loan:
$500,000
Equity:
$300,000
Equity grows over time as you pay down your loan and as your property increases in value.
In simple terms, it represents how much of your home you truly own. If you want a deeper breakdown of how lenders look at this, you might find it helpful to read Loan-to-value ratio (LVR) Unveiled: Mastering the Magic Number Behind Your Home Loan, since LVR plays a big role in how much equity you can actually use.
What Is Usable Equity?
Not all your equity is available to use.
Most lenders allow you to borrow up to 80% of your property’s value, then subtract what you still owe. The remaining amount is your usable equity.
Example:
Property value: $800,000
80% of value: $640,000
Existing loan: $500,000
Usable equity: $140,000
This amount can often be used as a deposit for your next property.
How Equity Can Replace a Cash Deposit
When buying a property, you usually need a deposit. This often comes from savings.
However, if you have enough usable equity, you may be able to use it instead.
Here is how it works in practice:
- You access equity from your current home
- That equity is used as security for a new loan
- The funds cover your deposit and possibly other costs
This approach allows you to move forward without saving a large amount of cash.
Ways to Access Your Equity
There are several ways to structure your loan when using equity. The right option depends on your goals and financial situation.
Home Loan Top-Up
You increase your existing home loan and access the additional funds.
This is a simple option, but it increases your current loan balance and repayments.
Separate Loan Split
You set up a new loan using your equity while keeping it separate from your original mortgage.
This can make things easier to manage, especially for investment purposes.
Refinancing
You move your loan to a new lender and increase the total borrowing amount.
This may help you access better rates or features, although there can be fees involved.
Line of Credit
You can access funds as needed rather than taking a lump sum.
This offers flexibility but requires careful discipline to manage spending.
Cross-Collateralisation
This involves tying your existing property and new property together under one loan structure.
While it may help with approval, it can reduce flexibility later. For example, selling one property may require lender approval and restructuring.
Step-by-Step: Using Equity to Buy Your Next Property
Understand Your Equity Position
A broker or lender will calculate how much usable equity you have.
Check Your Borrowing Capacity
Your income, expenses, and existing debts will determine how much you can borrow.
Get Pre-Approval
This gives you a clear budget and strengthens your position when making offers.
Find the Right Property
You can then search with confidence, knowing your financial position.
Finalise Your Loan Structure
This step is important. The way your loans are set up can impact your flexibility in the future.
Benefits of Using Equity
You Do Not Need a Cash Deposit
This is the biggest advantage. You can move forward without waiting years to save.
You Can Grow Your Portfolio Sooner
Using equity allows you to take action while the market is moving.
You Keep Your Savings Intact
Your cash can stay available for emergencies or other opportunities.
Potential Tax Advantages
In some cases, interest on investment-related loans may be tax deductible. It is best to speak with a tax professional for advice.
Risks to Be Aware Of
You Are Increasing Your Debt
Using equity means borrowing more, which increases your overall financial exposure.
Repayments Will Be Higher
More debt leads to higher monthly commitments.
Property Values Can Change
If the market declines, your equity position may reduce.
Cash Flow Becomes More Important
Managing multiple loans requires careful planning and consistency.
Loan Structure Matters
Poor structuring can limit your options later, especially if you plan to sell or refinance.
What to Consider Before Moving Forward
Before using equity, take a step back and assess your situation.
- Can you comfortably afford higher repayments?
- Do you have a financial buffer?
- Is your strategy focused on long-term growth?
- Have you structured your loans properly?
It is also important to understand that using equity comes with real risks, including the potential loss of assets if repayments are not maintained.
FAQs
Can I buy a property without a cash deposit using equity?
Yes. If you have enough usable equity, it can be used as a deposit instead of cash. Approval will still depend on your income and borrowing capacity.
How much equity do I need to buy another property?
It depends on the purchase price and your financial position. Many lenders allow access to equity up to 80% of your property’s value, minus your existing loan.
Does using equity mean taking on more debt?
Yes. You are borrowing against your current property, which increases your total loan amount and repayments.
Is using equity better than saving a deposit?
It can help you move faster, but it also increases risk. The right choice depends on your financial stability and long-term goals.
Can I use equity to buy both an investment property and a new home
In some cases, yes. This depends on your equity, income, and borrowing capacity. Proper loan structuring is important.
Final Thoughts
Equity can open doors that many homeowners do not realise are available.
It gives you the option to move forward without waiting years to save a deposit. At the same time, it requires careful planning and a clear strategy.
If you are thinking about your next move, the first step is understanding what you can actually do with the equity you already have.