Equity and usable equity
Equity is simply the property's value minus what you owe on it. Usable equity is the part a lender will generally let you borrow against without lenders mortgage insurance, which is usually up to 80% of the value.
Usable equity = (80% × property value) − current loan
An example, with illustrative numbers only. A home valued at $800,000 with a $450,000 loan:
| Amount | |
|---|---|
| Value | $800,000 |
| 80% of value | $640,000 |
| Less current loan | $450,000 |
| Usable equity | $190,000 |
Total equity is $350,000, but the usable figure is $190,000. Even then, usable equity is the most a lender might consider. Whether you can actually borrow it depends on your income, which we come to below.
It starts with the lender's valuation
The value that counts is the lender's, not a sales agent's appraisal or an online estimate. When you ask to borrow more, the lender orders a valuation, and lenders' valuers tend to be conservative. An online estimate is not a valuation, and it can be well off in either direction.
If the valuation comes in lower than you hoped, the usable equity falls with it. Using the example above, a valuation of $750,000 instead of $800,000 cuts usable equity from $190,000 to $150,000.
How the equity is released
Usually the lender increases your existing loan or sets up a separate loan split secured against the property. The money is then used as the deposit and costs on the next purchase, with a second loan for the rest.
How the loans are structured matters more than most people realise.
Cross-collateralised loans
Here, both properties secure both loans. It can look simpler, and lenders sometimes encourage it. The downside is control. If you later want to sell one property, refinance or move lenders, the lender can revalue everything and decide how much of the sale proceeds it keeps. A fall in one property's value can affect the other.
Standalone loans
Here, each property secures its own loan, and the equity release is a separate split on the first property. It's a little more paperwork up front, but each property can be sold or refinanced on its own terms. Many brokers prefer this structure for investors. Ask yours to explain the options for your situation.
Lenders mortgage insurance
If you borrow beyond 80% of a property's value, most lenders charge lenders mortgage insurance. It protects the lender, not you, and is usually added to the loan. Sometimes paying it makes sense because it lets you act sooner. It's a cost to weigh, not a rule never to break.
Serviceability is the real limit
Equity tells you what's available. Your income decides what you can borrow.
Lenders test whether you could keep up repayments if rates rose. As at October 2026, APRA expects banks to assess new loans at least 3 percentage points above the actual rate. They also count only part of any rent, and include your living costs and every other debt. APRA also limits how much new lending banks can do at six or more times the borrower's income.
So it's common to have $200,000 of usable equity and only be able to use part of it. A mortgage broker can tell you where your limit sits, before you start looking.
The risks
- Values fall. Equity is a paper figure. If values drop, the equity can shrink or disappear while the debt stays the same. Recent months are a reminder: Cotality's index shows Sydney and Melbourne house values down over the year to September 2026.
- Rates rise. More debt means every rate rise costs more. With two properties, you feel it twice.
- Holding costs come from your pocket. Most well-located houses cost something each week to hold after rent. Plan on the cost before any tax benefit.
- Over-leverage. Debt that's comfortable on a good income can be heavy if one income stops, a tenant leaves or repairs come at once. A cash buffer is not optional.
- Less room to change course. Borrowing more now can limit what you can borrow later, including for the home you actually want to live in.
Run the numbers first
Our calculators show the weekly holding cost of an investment and how your portfolio's debt and equity look under different assumptions. For the bigger question of whether borrowing to invest first makes sense at all, read Should you invest before you buy your own home?
Sources
- APRA, "APRA maintains current macroprudential policy settings in highly uncertain environment", May 2026
- Mozo, "Lenders mortgage insurance explained", June 2026
- Cotality, "Home Value Index, October 2026" (results as at 30 September 2026), October 2026
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