When people talk about property investing, equity is one of those words that gets thrown around like magic.
“Use your equity to buy another property.” “Leverage your equity for growth.”
But here’s the truth — equity isn’t free money. It’s a tool.
Used wisely, it can accelerate your portfolio. Used poorly, it can trap you.
This month, let’s break down what equity actually is, how to access it, and how to use it safely.
What Is Equity?
Equity is the difference between what your property is worth and what you owe on it.
Example:
If your home is worth $800,000 and your loan balance is $400,000, your equity is $400,000.
Simple enough — but here’s where most people get caught out.
You can’t access all your equity.
Usable Equity vs Total Equity
Banks usually cap lending at 80% of your property’s value to avoid Lenders Mortgage Insurance (LMI).
That means if your home is worth $800,000, most lenders will allow borrowing up to $640,000.
If you already owe $400,000, that gives you $240,000 of usable equity — the portion you can potentially draw from.
You can borrow above 80% (up to around 90–95% with LMI), but it adds cost and reduces flexibility.
In short, usable equity is the real number that counts.
How to Access Your Equity
There are three main ways to release equity:
- Top-up (loan increase) – Add to your existing loan balance.
- New split or line of credit – Create a separate loan facility secured by your property.
- Refinance – Move to a new lender who offers a higher valuation or sharper rate.
Each method has pros and cons.
A well-structured equity release keeps your loans flexible and your properties uncrossed.
A poorly structured one — for example, cross-collateralising multiple properties under one loan — can limit your options when you try to buy again or refinance.
Also note: lenders may apply “cash-out” limits, restricting how much equity you can withdraw for non-property or personal uses. Always clarify your purpose with your broker.
The Risks of Using Equity Blindly
Equity can supercharge your portfolio — or sink it — depending on how it’s used.
Here’s where investors often go wrong:
- Cash-flow strain: More debt means higher repayments. If rent doesn’t cover it, you need buffers.
- Over-leveraging: Borrowing to the max leaves no safety net if rates rise or tenants move out.
- Portfolio roadblocks: Poor loan structuring or cross-collateralisation can stall your ability to borrow again.
In short: equity should move you forward, not leave you stuck.
How to Use Equity Safely
- Run the numbers – Know your borrowing power, buffers, and cash-flow impact.
Lenders assess your borrowing capacity using a 3% serviceability buffer above the actual rate — so be conservative. - Match it to your strategy – Don’t buy just because you can. Make sure it aligns with your long-term goals.
- Structure loans carefully – Keep loans separate and flexible, with clear purposes for each.
- Work with a strategic broker – It’s not about one purchase; it’s about building a portfolio that compounds over time.
Final Word
Equity is one of the most powerful levers in property investing — but it’s not free money.
Used with a clear plan and solid structure, it can fund your next property and set you up for long-term success.
Used without thought, it can weigh you down.
At Home Equities, we help clients understand how much equity they can actually use, and the smartest way to put it to work.
If you’d like to know how your equity could fund your next move, book a free 30-minute consultation — we’ll show you the numbers, outline the risks, and give you a clear, confident plan for what’s next.
Book your free consultation here.
