Equity
The part of a property you own outright: its value minus what you owe on it.
- Equity = property value minus loan balance
- Grows through repayments and price growth
- Usable equity is usually up to 80% of value, less your debt
How it works
As you repay the loan and the property's value changes, your equity changes. Lenders let you borrow against part of it, called usable equity.
Using equity to invest
Many investors use equity in their home as the deposit for an investment property, instead of saving cash. This increases total debt, so it needs a clear plan.
A home worth $1,000,000 with a $500,000 loan has $500,000 of equity. At an 80% limit, usable equity is $800,000 minus $500,000, which is $300,000.
Illustrative only. Figures are examples, not a forecast or recommendation.
Using equity well is how most portfolios grow past the first property. Using it carelessly is how they stall.
Common questions
How do I find out my equity?
Ask a broker to order a lender valuation.
Is usable equity the same as available cash?
No. It is borrowing capacity against your property, and must still be serviced.
Related terms
Sources
General information only. It does not consider your objectives, financial situation or needs, and is not financial, credit, tax or legal advice. Rules change, so check current law and get advice from a licensed professional before acting.