Looking to buy a second property, but don’t have a deposit saved? If you already own a home, the key might be hiding in plain sight: your equity.
In Australia, thousands of homeowners are using their existing equity to secure a second property. Whether you’re eyeing an investment, a family upgrade, or a holiday home, leveraging equity could help you make it happen without selling your first home or draining your savings.
In this guide, Q Financial will walk you through how equity works when buying a second property, how much you may be able to access, and the practical steps to make it happen.
Why Equity Is the Key to Buying a Second Property
Equity is the portion of your home that you own. It’s the difference between its current market value and your outstanding loan balance. But it’s not just a paper figure. It’s a financial asset you can use to fund your next property purchase.
Instead of starting from scratch with a cash deposit, many homeowners use their home’s existing value to finance a second purchase, even while they’re still paying off their current loan.
For example, if your home is worth $900,000 and your mortgage is $420,000, you have $480,000 in equity. Lenders typically let you use a portion of that equity, often up to 80% of your home’s value, to help fund your next move.
This strategy can be especially useful if you want to enter the investment market, upsize your home, or take advantage of market conditions. You can do all this without needing to sell your current property or wait years to build up savings.
How Do You Actually Unlock Equity Without Selling Your Home?
You don’t need to sell your home to access equity. Most Australians unlock it while continuing to live in their property. There are several ways to do it, and the right one depends on your situation.
Common ways to access equity:
1. Top-up or loan increase: You increase the limit on your existing mortgage. This means your loan balance goes up, and the additional funds can be used toward your new property purchase. It’s often the most straightforward path, particularly if you’re staying with your current lender.
2. Split loan: You create a separate loan segment, secured against your current home, to fund the new purchase. This makes it easier to manage repayments separately and track tax-deductible interest if the new property is an investment.
3. Equity release loan: Some lenders offer purpose-built products like a home equity loan in Australia that release funds into your account, even before you’ve found a property. This gives you the flexibility to act quickly when the right opportunity appears.
4. Line of credit: A flexible revolving facility that allows you to draw on equity as needed. It’s often used for renovations or staged payments and may suit experienced investors or developers.
Example: If your home is valued at $950,000 and your current mortgage is $400,000, your usable equity at 80% LVR would be around $360,000.
Some borrowers also combine methods. For instance, they might use a split loan for the deposit and a line of credit to fund renovation or holding costs.
How Lenders Decide How Much Equity You Can Use
Not all of your equity is immediately available. Lenders apply limits to reduce their risk, typically capping access at 80% of your property’s value. Anything above that may attract Lenders Mortgage Insurance (LMI), which increases your overall cost.
Formula:
Usable equity = (Current property value x 80%) – Outstanding loan balance
But equity alone isn’t enough. Lenders will also assess:
- Your income and job stability
- Existing debts and expenses
- Number of dependents or financial commitments
- Credit history and repayment behaviour
- Type of property being purchased
This is known as a serviceability test. Even with significant equity, your ability to repay the loan will determine how much you can borrow. For instance, self-employed borrowers or those with fluctuating income may face additional documentation requirements or stricter lending criteria.
Some lenders also apply postcode restrictions or valuation caps, particularly in rural or oversupplied areas, which can impact the final figure.
How to Structure Your Loans When Using Equity
Loan structure can significantly affect your flexibility and financial risk. Choosing the right setup helps protect your assets and supports your long-term goals.
Two common approaches:
1. Standalone loan (often preferred)
- Your second property loan is completely separate from your current mortgage.
- You can sell, refinance, or adjust either loan without affecting the other.
- Ideal for investors and those wanting more control over future decisions.
2. Cross-collateralisation
- Both properties are tied together under one loan structure.
- This can limit flexibility and lead to complications if one property is sold, refinanced, or drops in value.
- While it may appear simpler at first, it can create roadblocks down the line.
Many borrowers end up with cross-collateralised loans without realising it, especially if they don’t work with a mortgage broker on the Gold Coast. If you plan to grow a portfolio or want the option to sell one property in future, it’s worth structuring your loans with care from the beginning.
Using Equity as a Deposit: Step-by-Step Process
Here’s how the process typically unfolds when using equity to buy another property:
- Valuation ordered: Your lender or broker organises a valuation to confirm the current market value of your home.
- Calculate usable equity: Based on the valuation and your current loan, your broker estimates the amount of equity available for use.
- Get pre-approved: This confirms how much you can borrow, factoring in your income, expenses, and the equity available.
- Choose the loan structure: Your broker helps you decide whether to top up your current loan, split it, or create a new standalone loan.
- Funds are released: Once approved, equity funds can be directed to your solicitor or deposited into a designated account to act as your new deposit.
- Proceed with purchase: You use the released equity at settlement. Note that other costs like stamp duty and legal fees still need to be factored in.
- Finalise and manage both loans: You now hold two loan facilities: one for your existing home and one for the new property.
While the process sounds linear, your broker will often handle multiple moving parts at once, including timing, approvals, and documentation to ensure a smooth transaction.
What Can Go Wrong (And How to Avoid It)
Equity is powerful, but it’s not risk-free. Here are common mistakes to avoid, along with tips on how to steer clear of them:
- Borrowing too close to the limit: Accessing equity up to 90–95% LVR may trigger LMI and leave you with limited financial breathing room.
- Skipping the valuation step: Don’t assume your home is worth what your neighbour’s sold for. A lender’s valuation is the only figure that counts for equity release.
- Unknowingly cross-collateralising: This can restrict your ability to refinance, access equity again, or sell one property without impacting the other.
- Assuming equity guarantees loan approval: Equity helps, but income, credit, and financial commitments are equally important in a lender’s eyes.
- Not planning for cash flow: Even with strong equity, if you can’t service the new repayments, things can unravel quickly.
- Overlooking tax implications: Especially if the second property is an investment, structuring your loan incorrectly can reduce tax effectiveness.
- Focusing only on the interest rate: Lenders with lower rates may be less flexible with equity access or loan structuring. Sometimes paying a slightly higher rate for better terms is worth it.
Talking to a broker and an accountant before you act can help you avoid all of the above. It also sets you up with a strategy that lasts—especially if there’s a chance you’ll consider living in your investment property later on. It’s also worth considering the property type that suits your investment goals, as the wrong fit could put pressure on your cash flow or limit your future flexibility.
How to Know If You’re Ready to Use Equity
Using equity successfully starts with more than just having a high property value. Here are some signs you might be ready:
- You have 20% or more usable equity based on your latest valuation
- Your income supports the repayments for an additional loan
- You have a clear reason for buying a second property, whether it’s for investment, upsizing, or family planning.
- You’ve maintained a good credit history and have stable employment
- You’ve already discussed your goals with a broker and financial adviser
Beyond numbers, it’s important to consider your risk comfort level. Will another loan stretch your lifestyle too far? Are you financially prepared for interest rate changes or maintenance costs? Thinking through these questions ensures your strategy aligns with your bigger picture.
If you’re unsure, even a 30-minute broker conversation can help you map things out clearly and make an informed decision.
Tips to Maximise Your Equity Potential (Without Overleveraging)
Here’s how you can grow or unlock equity faster, more safely, and with less financial stress:
- Make extra repayments: Even $50–$100 extra per fortnight can shave thousands off your loan and build equity faster. Automate it for consistency.
- Review your loan every 12–18 months: Refinancing to a lower rate or more flexible lender can help reduce interest and free up borrowing power.
- Be smart with renovations: Strategic upgrades (kitchens, bathrooms, curb appeal) can boost your valuation. Focus on changes that appeal to valuers, not just style trends.
- Avoid unnecessary redraws: Using redraw or offset funds for non-essential spending reduces the equity available for investing.
- Leverage capital growth periods: If your suburb’s market is rising, time your valuation to capture peak value. Don’t request one after a downturn.
- Maintain clean credit: Your equity means little if your credit history disqualifies you from borrowing. Keep your accounts in good standing.
- Work with professionals: A broker can advise which lenders value your property type favourably and which ones offer better servicing calculators.
Think of equity like a seed. You can let it sit in the ground, or you can water it wisely and grow something bigger from it.
Why a Mortgage Broker Is Crucial in Equity Strategy
An equity release mortgage isn’t just about numbers. It’s about designing a strategy that supports your long-term financial goals. A mortgage broker helps you turn theory into action, with structure and support that protects your financial position.
Here’s what a broker brings to the table:
- Equity assessment: Not all equity is usable. A broker does the real maths based on lender policies, valuation models, and your personal finances.
- Lender selection: They know which lenders offer better terms for equity release, flexible serviceability rules, or favourable property policies.
- Loan structuring: Avoid costly mistakes like cross-collateralisation. Brokers tailor your loans to match your goals and keep options open.
- Pre-approval prep: Brokers guide you through valuations, documents, and lender requirements so you’re not caught off guard.
- Long-term planning: If you plan to invest again or refinance later, a broker helps set up your loan structure accordingly from day one.
A good broker isn’t just trying to get you approved. They’re helping you build a strategy that grows with you over time.
Ready to Turn Your Equity Into a Second Property?
Your equity could be the stepping stone to your next home or investment, but only if you use it strategically.
With the right guidance, equity can help you:
- Fund your next property without a cash deposit
- Enter the investment market sooner
- Upgrade your lifestyle while retaining your current home
- Build wealth through smart loan structuring and planning
But it all starts with knowing where you stand. How much equity can you use? What’s the smartest way to structure your loans? And is now the right time?
Let’s find out together.
Book a strategy session with a mortgage broker today and unlock the possibilities waiting inside your property.
Frequently Asked Questions (FAQs)
Yes, it can be, especially if you want to invest or upsize without saving a new deposit. Using equity allows you to unlock value from your current property to fund your next move.
Ensure the loan structure aligns with your long-term goals and that your cash flow can comfortably support the repayments.
Generally, you’ll need at least 20% usable equity to cover the deposit and avoid Lenders Mortgage Insurance (LMI).
That means if you’re buying a $700,000 second property, you’d typically need around $140,000 in usable equity, plus enough income to support the total loan amount.
The minimum is often 20% of the new property’s value, but some lenders allow lower deposits with LMI.
For example, if your current home is worth $900,000 and you owe $400,000, you may have around $320,000 in usable equity at 80% LVR. That’s enough for a second loan if your borrowing power stacks up.
Equity gives you a deposit, but your income and existing commitments determine how much you can actually borrow.
Lenders look at both your usable equity and your serviceability (your ability to repay). A broker can run the numbers to show what’s realistically possible based on both.
