Using equity to purchase another property is a scenario I come across quite a lot. It is a great way to buy another property if you don’t have the deposit but can service the loan and assuming you have enough equity in your house.

When you use this structure you need to understand the 2 properties and loans are now linked together as one. You cannot do anything with either property without the other property being involved.

Calculating equity

To work out how much equity you have in your property, you’ll need to subtract any debt remaining on your mortgage from the property’s overall value. So, if your property’s worth $500,000, and you have $300,000 left on your mortgage, then your equity is $200,000.

Your property’s equity will increase both as you pay off your mortgage and as the property’s value increases. So, if your $500,000 property increases in value by 10% over 12 months that’s an extra $50,000 in equity. Add to this any deduction to the mortgage gained through repayments, and your equity has significantly increased over the year.