Using equity to invest or buy another home | Home loan guide - NAB
What is equity and useable equity?
Equity is the difference between your home’s market value and what you still owe on your loan.
Property value minus amount owed equals equity.
Lenders usually let you borrow up to 80 percent of your home’s value, less your current loan. This is called useable equity. If you borrow more than 80 percent, you may need lenders mortgage insurance (LMI). For example: If your home is worth $400,000 and your loan is $220,000, 80 percent of value is $320,000, so your useable equity is $100,000.
Step-by-step to use equity as a deposit
Step 1: Estimate your useable equity
You can use the home equity calculator or request a valuation to calculate how much equity you may have available. Existing customers can seamlessly check their equity using the equity calculator in the NAB app.
Step 2: Choose how to access it
Options include a top up to your current loan, a refinance with a new split or a bridging loan if you need to buy before you sell.
Step 3: Apply equity to your deposit
To avoid LMI, you usually need a 20 percent deposit on the new property.
Step 4: Check repayments fit your budget
Use the home loan repayments calculator to estimate how much you’ll need to pay each month for better budgeting.
Buying a second home vs buying an investment property
If you’re using equity to buy another house, your path depends on the purpose. For a second home, lenders assess both loans and your living costs. Timing matters if you’re selling your current place, and a bridging loan may help cover the gap. For an investment property, lenders may count expected rent, and rates can differ.
How much can you borrow?
A simple guide is the rule of four, in which you multiple your useable equity by four to estimate the maximum property purchase price. For example: If your useable equity is $100,000, a target property price could be about $400,000. Remember, your real borrowing power depends on income, expenses, debts, rates and credit history. Test it with the borrowing power calculator, then get pre-approval to move quickly.
Example scenarios
Other costs to plan for
Beyond the deposit, plan for stamp duty, conveyancing, building and pest inspections, lender fees, and settlement adjustments. For investors, add property management fees, insurance, maintenance and vacancy buffers.
How to build equity faster
Small changes add up.
Have a backup plan
Even if you have plenty of equity, it’s not always a given that you can borrow against it. Your lender will consider several factors including:
- your income
- your age
- any additional debts.
Remember to play it safe. If you don’t have any funds outside your home equity, then it’s risky to use every cent of your useable equity to invest in property.
You should consider having back up funds in case things don’t go to plan. Even if it means you can’t invest for a while, it’s important to keep yourself protected.
Unlocking all your equity to improve your lifestyle or wealth will increase your level of risk. That’s why it’s always a good idea to consider how much lending you take on.
To make sure you have a plan in place, it’s best to speak with an expert. Simply contact one of our home loan experts – they’ll help you figure out the best solution for your situation.
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Tools and calculators
Equity loan calculator
Evaluate your home’s equity and see how you could make it work for you.
View your home loan equity
Follow our step-by-step guide to learn how to view your home loan equity using online banking.
Home loan repayment calculator
Compare your loan amount with other factors to estimate your minimum loan repayments.
Contact us for home loan related queries
This is how you can get in touch.
Start a conversation with a banker
- Log into either NAB Internet Banking or the NAB app.
- Tap on the message icon.
- Type ‘speak to a person’ in the conversation window.
Call us
Speak to a home loan expert about a new or existing home loan.
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Book an appointment
Make an appointment to see us at your nearest branch, ask a mobile banker to come to you or ask us to call you back.
Terms and Conditions
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.
Always consider what the best solution is for your situation and be aware of what those commitments will mean to your lifestyle.