Key Takeaways
• Home equity is the part of your property you own outright: its value, minus what you still owe.
• Usable equity is generally up to 80% of your home's value, minus your loan balance.
• You can put equity to work in many ways, from renovating to buying a second property.
• Equity can fund the deposit on a second property, but you also need the income to service both loans.
Home equity is one of the most useful and most misunderstood parts of owning a property. As you pay down your loan and your home's value grows, you build up equity, and that equity can be put to work in all sorts of ways, from renovating to buying another property. The big questions most people have are simple: how much equity do I actually have, and is it enough to do what I want, especially to buy a second property?
This guide explains what home equity is, how to work out how much of it you can use, and the main things you can do with it. It also tackles the question many homeowners ask: " Have I got enough equity for a second property? It is general information rather than advice, but it should give you a clear starting point.
Equity can feel abstract until you see your own numbers, so it helps to get clear on what you have and what it enables. You will find your questions about home equity addressed on our site, and we are happy to work through your figures with you at no cost and no pressure.
What Home Equity Is
Let us start with the basics, because the idea is simpler than it sometimes sounds.
Your home equity is the difference between what your property is worth and what you still owe on it. If your home is worth $700,000 and you owe $400,000, you have $300,000 in equity. It grows in two ways: as you pay down your loan, and as your property rises in value over time. Equity is real wealth, but it is tied up in your home, which is why using it usually means borrowing against it rather than simply withdrawing it.
How Much Equity Can You Actually Use?
There is an important difference between your total equity and the portion a lender will let you borrow against.
Lenders generally let you borrow up to 80% of your home's value before the lender's mortgage insurance applies. So your usable equity is around 80% of your home's value, minus your current loan balance. For a $700,000 home with a $400,000 loan, 80% of the value is $560,000, leaving about $160,000 in usable equity. That usable figure, not your total equity, is what you have to work with. You can sometimes borrow beyond 80%, but that usually means paying lenders' mortgage insurance, so most people stay within it and keep a little in reserve.
What You Can Do With Your Equity
Once you know your usable equity, the question becomes what to do with it. There are several common options, each worth a closer look in its own right. People commonly use their equity to:
• Renovate or improve their home, which can also add to its value.
• Buy an investment property, using the equity as the deposit.
• Release cash for other major purposes, such as a car or education.
• Consolidate higher-interest debts into their lower-rate home loan.
• Invest in other assets, though this carries risk and calls for advice.
Each of these uses works a little differently, and several have their own detailed guides. Whatever the purpose, the common thread is that you are borrowing against your home, so it pays to use equity deliberately and keep a buffer.
Have You Got Enough for a Second Property?
This is the question that brings many homeowners to their equity in the first place, so it is worth working through properly.
To buy a second property, you generally need enough to cover a deposit, ideally around 20% to avoid a lender's mortgage insurance, plus purchase costs like stamp duty. Your usable equity can supply that deposit and those costs, often without touching your cash savings. Because the deposit and costs amount to roughly a quarter of the price, a quick rule of thumb some use is to multiply your usable equity by 4 to get a rough maximum price. In practice, allowing for costs and a sensible buffer, about $160,000 of usable equity comfortably covers the deposit and costs on a property in the region of $500,000 to $600,000.
There is a crucial second part, though. Having enough equity covers the deposit, but you also need income to service both loans, which the lender assesses carefully, including a safety buffer in the repayments. Equity opens the door; serviceability decides whether you can walk through it. So Have I got enough?' really has two answers: enough equity, and enough income to comfortably carry both loans.
How to Find Out Your Equity
Working out your usable equity is straightforward in principle, and a professional can confirm it precisely.
You can estimate your usable equity yourself: take 80% of your home's likely value and subtract your loan balance. The figure that really counts, though, is the one a lender will use, which is based on a formal valuation of your property, and that can differ from your own estimate. A broker can help you estimate your usable equity, arrange the valuation, and, importantly, tell you what it actually enables once serviceability is taken into account. That turns a rough idea into a clear, usable number.
A Real-World Example: Putting Equity to Work
Here is how the pieces fit together in practice, with round figures. Treat it as a guide only.
Nadia owns a home worth $680,000 and owes $380,000. Her usable equity, up to 80% of the value, is about $164,000: that is 80% of $680,000, which is $544,000, minus her $380,000 loan. She is considering buying an investment property priced at around $500,000, which would require roughly $125,000 to cover the deposit and costs. Her equity comfortably covers that.
Before getting excited, Nadia has her broker check the other half of the equation: whether she can service both her home loan and the new investment loan on her income. The numbers work, so her equity and her income line up. Had the serviceability fallen short, the equity alone would not have been enough, which is exactly why both matter.
Frequently Asked Questions (FAQs)
What is home equity?
Home equity is the part of your property you own outright: its value, minus the amount you still owe on your loan. For example, if your home is worth $700,000 and you owe $400,000, you have $300,000 in equity. It grows as you pay down your loan and as your property rises in value. Equity is real wealth, but because it is tied up in your home, using it usually means borrowing against it.
How do I work out my usable equity?
Take around 80% of your home's value and subtract your current loan balance. Lenders generally lend up to 80% of the value before the lender's mortgage insurance applies, so that gives your usable equity. On a $700,000 home with a $400,000 loan, 80% is $560,000, leaving about $160,000 of usable equity. The lender's figure is based on a formal valuation, which can differ from your own estimate.
What can I use my home equity for?
Plenty of things. Common uses include renovating your home, buying an investment property using the equity as a deposit, releasing cash for major expenses, consolidating higher-interest debts, or investing in other assets. Each works a little differently, and some carry more risk than others, so they are worth understanding individually. Whatever the purpose, using equity means borrowing against your home, so it pays to do it deliberately.
How much equity do I need to buy a second property?
Generally, enough to cover a deposit of around 20%, plus purchase costs like stamp duty, which together come to roughly a quarter of the price. So your usable equity needs to cover about a quarter of the property you have in mind. For instance, around $160,000 in usable equity could cover the deposit and costs for a property priced at roughly $500,000 to $600,000. A larger deposit and keeping a buffer give you more room.
Is having enough equity all I need for a second property?
No, and this is the part people miss. Having enough equity supplies the deposit, but you also need the income to service both loans, which the lender assesses with a safety buffer on the repayments. Equity opens the door, but serviceability decides whether you can proceed. So having enough for a second property really means having both enough equity and enough income to comfortably carry both loans.
How do I find out exactly how much equity I have?
You can estimate it by taking 80% of your home's likely value and subtracting your loan balance. The figure that counts, though, comes from a formal valuation that the lender arranges, which can differ from your estimate. A broker can help you estimate your usable equity, organise the valuation, and tell you what it enables once your ability to service the loans is factored in. That gives you a precise, usable answer rather than a rough guess.
The Bottom Line
Home equity is the share of your property you truly own, and as it grows, it becomes a flexible financial tool. Your usable equity, generally up to 80% of your home's value minus what you owe, is what you have to work with, and it can fund renovations, an investment property, debt consolidation, or other goals. Knowing that figure is the starting point for almost any plan involving your home's value.
When it comes to a second property, equity can supply the deposit and costs, but it is only half the picture: you also need the income to service both loans. Have enough of both, and the path opens up; fall short on either, and it is a sign to prepare. The simplest next step is to find out your real usable equity and what it enables. If you would like a clear picture of your numbers, we would be glad to work them out with you.