Equity is how a lot of investors fund their next purchase without saving a fresh deposit from scratch. The trick is knowing how much of it you can actually use — which is less than your total equity.
What is equity?
Your equity is your property's current market value minus what you still owe on it. If your home is worth $700,000 and your loan balance is $350,000, your equity is $350,000. It grows two ways: as you pay down the loan, and as the property rises in value.
How to build equity faster
- Pay principal and interest (not interest-only) so the balance actually falls.
- Make extra repayments where your loan allows it without penalty.
- Use an offset account — the balance reduces the interest you're charged, paying the loan down faster.
- Let value grow over time, and improve the property to lift its market value.
You can't use all your equity
Lenders generally let you borrow up to 80% of your property's value, because they want you to keep at least 20% ownership and avoid Lenders Mortgage Insurance (LMI). So your usable equity is:
Worked example: ($700,000 × 0.80) − $350,000 = $560,000 − $350,000 = $210,000 usable equity.
The rule of four
A quick way to estimate the price of the next property you could buy: usable equity × 4. So $210,000 × 4 = $840,000. Multiplying by four assumes a 20% deposit (avoiding LMI) and leaves a buffer for stamp duty and legal costs.
A full example
Michael buys for $500,000 with a $100,000 deposit. Ten years on he owes $250,000 and the property is worth $550,000, so his usable equity is ($550,000 × 0.80) − $250,000 = $190,000. He uses $120,000 as the deposit on a $600,000 investment property and keeps $70,000 for fees and repairs.
Ways to access your equity
- Loan top-up — increase your existing loan against the equity, without a full refinance.
- Home equity loan — a separate loan secured against your equity.
- Line of credit — a revolving limit you draw on as needed (discipline required).
- Reverse mortgage — for owners aged 60+, borrowing a portion of equity with negative-equity protection.
The benefits — and the risks
Used well, equity gives you a bigger deposit (lower rate, lower repayments), gets you past the tougher lending bar on investment loans, and borrows at secured rates. The risks are real too: you're turning owned value into debt, you're now exposed to two markets at once, and the interest is only tax-deductible on the portion used to produce income (an investment), not on borrowing for personal use.
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Book a Clarity Call — It's FreeCommon questions
How much of my equity can I actually use?
Usually up to 80% of your property's value minus your current loan balance. On a $700,000 home with a $350,000 loan, that's ($700,000 x 0.80) - $350,000 = $210,000 of usable equity.
What is the rule of four?
A rough guide to the price of the next property you could buy: usable equity multiplied by four. It assumes a 20% deposit to avoid LMI and leaves a buffer for stamp duty and fees. $210,000 of usable equity points to roughly an $840,000 purchase.
Can I use equity as the deposit on an investment property?
Yes — that's one of the most common ways investors fund a second purchase. Just remember the interest is only tax-deductible on the portion used to produce income, and you're then exposed to two property markets at once.
This article is general information only and doesn't take your personal circumstances into account. It isn't financial, tax or investment advice. Tax rules and lender policies change — confirm your position with a licensed professional or the ATO before making decisions.
