Have you owned your home for a few years and wondered if you could use it to help buy another property?
Nowadays, a lot of Australians are thinking about using their home equity to finance their next relocation.
If you’ve been paying off your mortgage and your property’s value has grown, you might have access to usable equity.
Using home equity to buy another property can unlock financial opportunities, but it requires careful planning.
This blog provides a clear, step-by-step guide on leveraging home equity for a second mortgage loan, covering methods, risks, and tips to ensure success.
What Is Home Equity?
Home equity is the difference between your property’s current market value and your outstanding home loan. It reflects the portion of the property you legally own.
For example:
- Property Market Value: $900,000
- Outstanding Mortgage: $500,000
- Total Equity: $400,000
However, not all equity is accessible for borrowing purposes. Banks typically allow you to access up to 80% of your property’s value, minus what you still owe.
Understanding Useable Equity
Lenders allow you to borrow only a percentage of your home equity—this is called usable equity. Most second mortgage lenders in Australia, calculate this at 80% of your property’s value, less your existing mortgage balance. This conservative approach protects both you and the lender from potential market downturns.
Why Use Equity To Buy A Second Property?
There are many benefits of using equity to purchase a second property, whether for an investment or for personal use. You do not need a large cash deposit. This means that you can keep your savings in other investments. Using equity to acquire a second property can provide you with equity-backed financing; those “2nd mortgage loans” carry lower rates than unsecured loans, when utilised properly.
If you hold a second property, it can earn you rental income and/or capital gains, and help you to accumulate wealth. However, there can be numerous factors affecting the rates for 2nd mortgage loans. Therefore, it is best that you seek professional advice.
Three Ways To Access Your Home Equity
There are three main ways to tap into your home equity for a second mortgage loan. Each has distinct features, as outlined in the table below:
1. Second Mortgage Loan
A second mortgage loan allows you to borrow against your home equity while keeping your original mortgage intact. This creates an additional monthly repayment alongside your existing home loan.
Key Features:
- Fixed interest rates
- Separate loan application process
- Additional monthly repayments required
- Funds available as lump sum
2. Home Equity Line of Credit (HELOC)
A HELOC offers flexible access to money over a defined draw time, in contrast to a conventional second mortgage loan. Interest is applied solely to the portion of funds that have been utilized.
Benefits:
- Flexible borrowing amounts
- Interest-only payments during draw period
- Variable 2nd mortgage interest rates
- Perfect for staged property purchases
3. Cash-Out Refinance
This option involves refinancing your existing mortgage for a higher amount than your current balance. The difference is provided as cash, which can fund your second property purchase.
Advantages:
- Single monthly payment
- Potentially lower interest rates
- Streamlined application process
- May secure better loan terms
Step-by-Step Process To Buy A Second Property Using Equity
Step 1: Determine Your Current Equity
Start by getting your property professionally valued. Then subtract your current mortgage balance to find your total equity.
Next, calculate your usable equity. This is often 80% of your home’s worth minus the remaining balance. Lenders use this figure to assess how much you can borrow.
Step 2: Check Your Loan-to-Value Ratio (LVR)
The LVR represents the percentage of the property’s market value that’s covered by your loan. The lower your LVR, the less risky you appear to the lender. For accessing equity, lenders usually prefer an LVR below 80%.
Step 3: Understand Your Borrowing Power
Your usable equity will influence the deposit you can put down on the second property. But it’s not the only factor. Lenders will also assess:
Your credit score
- Your income and expenses
- Any existing debts
- Type of property being purchased
Different lenders apply different assessment criteria. This is why it’s helpful to consult experienced second mortgage lenders in Australia.
4. Choose the Right Loan Structure
Depending on your circumstances, you may opt for:
- A second mortgage loan
- A refinance of your existing mortgage
- A separate loan secured against the second property
Those looking to combine debt often refinance second mortgage arrangements into a single new loan with adjusted terms.
Need Quick Access To Equity For Your Second Property?
Don’t let delays hold you back. At Knote, we help business owners and investors access fast funding through second mortgage loans and equity-backed solutions — without bank hassles, credit checks, or long waits.
With same-day approvals, flexible terms, and minimal paperwork, we make it simple to turn your property equity into your next investment step. Apply now with Knote.
