Equity
The share of your property you actually own — its market value minus what you still owe on it.
Equity is the difference between what a property is worth and the debt secured against it. It grows two ways: through repayments reducing the loan, and through the property increasing in value.
Lenders distinguish total equity from usable equity. Because most will lend only to 80% of value without mortgage insurance, usable equity is 80% of the property's value minus the current loan balance.
Usable equity is how most Australians buy their second property. Rather than saving another cash deposit, they borrow against the equity in the first, using it as security for the new purchase.
Total versus usable equity
A $800,000 property with a $400,000 loan has $400,000 of total equity. Usable equity is 80% of $800,000, which is $640,000, minus the $400,000 loan — leaving $240,000 available.
The bit people get wrong
Using equity is borrowing, not free money. It increases your total debt, secures a new loan against your home, and means a market downturn can leave you owing more than both properties are worth.
Common questions
How do I access my equity?
By refinancing, taking a top-up loan, or establishing a line of credit. The lender revalues the property and lends against the increase, subject to servicing and lending criteria.
Is borrowed equity tax deductible?
The deductibility depends on what the borrowed funds are used for, not what secures them. Borrow against your home to buy an investment and the interest is generally deductible; borrow for a holiday and it is not.
Does paying extra into an offset build equity?
It has the same practical effect on your net position and reduces interest, but the loan balance itself stays unchanged, so a lender assessing usable equity treats it differently from a direct repayment.
Run your own numbers