You may be thinking about whether I can buy another house with my equity or not, so the simple answer is yes. In fact, many homeowners in Australia are using equity to buy another house right now.
Like, as per the Australian Bureau of Statistics (ABS), in the June quarter of 2025, there were 129,994 new loan commitments for dwellings. And among those, around 49,065 were investor loan commitments.
This represents people purchasing property as an investment through their significant portion of their home equity to fund these purchases. So, what is home equity, and how can you use it to buy another house? The following is the detailed description.
What is Home Equity?
Home equity is the portion of your property that you truly own. It is the difference between your home’s current market value and the outstanding balance on your mortgage.
For example, if your house is worth $700,000 and you owe $400,000 on your loan, then your equity is $300,000. Meanwhile, it grows as you pay off your mortgage or as your property value increases over time.
But there are two parts of it—
Usable Equity
It is the portion of your equity that lenders allow you to access. But it’s not that all your equity will be available, there are some criteria. Lenders typically allow you to borrow up to a specific Loan-to-Value Ratio (LVR), which is typically approximately 80% of your property value.
Say your home’s value is $700,000 and your lender allows 80% LVR, then $560,000 will be the maximum amount you can borrow. Moreover, if you owe $400,000, your usable equity will be $160,000, the portion you can use to buy another property or for other investments.
Non-Usable Equity
The rest of your equity is considered non-usable. Why? This is because your lender won’t allow you to borrow against it. However, this portion still belongs to you and contributes to your net wealth. Only you cannot access it without reducing safety margins or taking on a higher risk.
Considering the above example, where your home’s value is $700,000, your non-usable equity will be $140,000 after considering your usable equity and liabilities.
How To Calculate Your Property’s Equity
Calculating your home equity isn’t hard, it’s simple. By using the formula below, you can easily calculate this.
Home Equity = Current Market Value of Property – Outstanding Mortgage Balance
For example,
- Your property value is $700,000
- Outstanding mortgage is $400,000
- Then your home equity will be $300,000
Meanwhile, if you want to know your usable equity, consider the lender’s Loan-to-Value Ratio (LVR). Like, for an 80% LVR, the maximum borrowing amount will be $560,000 (80% of $700,000).
After subtracting your existing loan of $400,000 from the maximum borrowing amount of $560,000, you will have $160,000 in usable equity. And this is what you can use to buy another house.
How to Use Equity to Buy a House
Before getting into the ways you can use equity, it’s important to understand how to calculate your borrowing power. The maximum amount you can borrow.
Usually, you’ll need a 20% deposit for a home loan, whether it’s a standard home loan, a bridging loan, or an investment property loan.
For example, if you use $80,000 of your home’s equity as a deposit, you could potentially purchase a $400,000 property. But this will only be considered if you have covered stamp duty and settlement fees (including government fees) with your savings and meet the loan criteria.
In simple words, after considering all your upfront costs and deposit, the remaining money becomes your available borrowing budget.
However, you also need to consider LMI (Lender Mortgage Insurance), especially when your deposit is less than 20%. That’s because LMI typically adds approximately 2–3% to the loan amount in extra fees and the interest rates on the new loan. So, it’s important to factor this into your borrowing budget.
And now that you know your borrowing power, you can use your equity to buy another house. For that, there are several ways you can access it, such as
Refinancing Your Current Mortgage
Refinancing in general means replacing your existing home loan with a new one, often with a higher balance to free up some of your equity. For example, if your home has $160,000 in usable equity, with refinancing, you could release that amount as cash to use as a deposit for a new property.
The best part is that you can also get access to lower interest rates and consolidate debts. But refinancing usually comes with fees (application, legal, and valuation). That means if you increase your loan balance, it may increase your monthly repayments.
Using a Home Equity Line of Credit (HELOC) or a Lump Sum
A HELOC is another way that allows you to borrow against your home’s equity on an as-needed basis, similar to a credit card. You can also request a lump sum from your equity in this for a one-time property purchase.
Say, if you have $160,000 in usable equity, then with a HELOC, you can initially draw $80,000 for a deposit and withdraw more later if needed. Meanwhile, you will also get the benefit of flexible repayments with interest only on the amount you use. However, interest rates may be higher than standard home loans, so you need discipline to manage repayments.
Cross-Collateralisation
Apart from those options, if you choose cross-collateralisation, then you can have other unique benefits. Like, you can use both your existing property and the new property as security for a single loan. At best, lenders may lend you more because the risk is spread across multiple assets.
For example, your current home and the new property value can both be used as collateral to secure a $400,000 loan. With this, you can have more borrowing power without requiring a huge deposit. But if you can’t pay off your debt on either property, both can be repossessed.
Using Equity for a No-Deposit Purchase
In some cases, it’s possible that you can use your equity as the full deposit for a new property, effectively allowing a “deposit-free” purchase. Such that, if you have $80,000 in usable equity, which can cover a $400,000 property deposit, you can use your savings for other upfront costs.
The benefit? You can enter the property market faster without additional savings. But it often requires Lenders’ Mortgage Insurance (LMI), higher interest rates, and a strict lender assessment. So, you need to be careful regarding that.
Pros and Cons of Using Equity to Buy Another House
Though you can use your equity to buy another house, it has its own pros and cons.
Pros
- You don’t need to wait years to save for a deposit, you can do that with your equity and enter the market early.
- You can even benefit from both capital growth and rental income by holding multiple properties.
- Also, if the new property is an investment, you can claim deductions on interest, expenses, or even use negative gearing.
- You can even have lower rates and flexibility to restructure your debts during refinancing.
- You’ll be able to borrow more and have greater freedom to make new purchases when the time feels right.
Cons
- Your monthly expenses will go up, since you’ll be taking on bigger financial responsibilities.
- Likewise, if property values fall, your equity may be reduced, which means you will have limited options.
- Rental income may not always cover loan repayments, especially if the property remains vacant.
- Refinancing fees, stamp duty, LMI, and settlement costs can also reduce your overall benefits.
- Options like cross-collateralisation can tie properties together, making it harder to sell or refinance later.
Final Thoughts
Using equity to buy another house in Australia is a practical option, no doubt. In fact, in the June quarter of 2025 itself, several people used this option. However, you can only use usable equity, subject to lenders’ requirements and market needs. And the other part, the non-usable one, will still be in your equity, but you cannot use it.
Meanwhile, it also has certain pros and cons, like you can enter the market early, but it will eventually increase your financial repayments. You can benefit from both rental income and capital growth, subject to changing market conditions. So, before deciding, consider all these perspectives.
To know more, book a call at 1300 GET LOAN, 0456 456 267 or an appointment at Nfinity Financials.
FAQs
Here are some more answers to the most commonly asked questions-
Q1. Can I use equity to pay off a mortgage?
Yes, but usually it’s smarter to use equity for buying or investing, not just shifting debt without gaining financial benefits.
Q2. When not to use a home equity loan?
If you’re struggling with repayments, have unstable income, or risk over-borrowing in a falling property market, then you should avoid it.
Q3. How many times can you use a home equity loan?
There’s no set limit. You can reuse equity as long as you have enough usable equity and meet the lender’s criteria.
Q4. Is a home equity loan better than a personal loan?
Typically, a home equity loan is better than a personal loan because it offers lower interest rates and higher borrowing limits.
Q5. What is the interest rate on an equity loan?
It varies by lender, but typically they range between 5% and 9% depending on the prevailing market conditions, your creditworthiness, and your loan type.
