How to Use the Equity in Your Own Home to Buy an Investment Property
If you already own your home, you might be sitting on a hidden asset that could help you grow your wealth: equity. For many New Zealanders, the quickest path to buying an investment property isn’t saving another deposit—it’s using the equity in the home they already own.
Whether you're a seasoned property investor or looking to buy your first rental, here’s everything you need to know about how equity works and how to leverage it to build your portfolio.
What is Home Equity?
Equity is the difference between your home’s current market value and the amount you still owe on your mortgage.
Example:
Your home is worth $900,000
Your mortgage balance is $500,000
You have $400,000 in equity
But not all of that is available to use. Banks generally allow you to borrow up to 80% of your home's value (sometimes less if you're self-employed or have other risk factors). So you'd need to subtract your mortgage from that 80% figure to find your usable equity.
Usable equity calculation:
$900,000 x 80% = $720,000
$720,000 – $500,000 = $220,000 usable equity
That $220,000 can potentially act as the deposit for an investment property.
How Much Equity Do You Need?
To buy an investment property, most lenders require a 30% deposit. However, some exemptions apply, such as for new-build properties, which may allow you to borrow with just a 10% deposit.
Let’s say you’ve found an investment property for $700,000. You’ll need at least a $210,000 deposit if the bank requires 30%.
If you already have $180,000 usable equity from your own home, you’re well on your way. You could either:
Top it up with cash savings to hit the deposit threshold, or
Look for a lower-priced property, or
Seek a new-build opportunity with lower deposit rules
How Do You Access That Equity?
There are two main ways to structure the lending:
1. Top-Up on Your Existing Mortgage
You apply for a top-up from your current lender to release the equity. This might mean increasing your mortgage and using the funds as a deposit for the new purchase. The bank may then secure both your home and the new investment against the total lending.
2. Cross-Collateralisation (One Loan Against Two Properties)
This involves the bank securing both properties under a single lending arrangement. It can be convenient but has some risk—if something goes wrong with one property, the bank can take action across both.
In most cases, a skilled mortgage adviser will help you structure this in a way that protects your home and separates the investment property lending as much as possible.
What Will the Bank Look At?
Equity is only part of the picture. Even if you have enough usable equity, you’ll still need to pass the bank’s servicing test—this means they’ll assess whether your income (including potential rental income) can support the new lending.
Banks typically scale the expected rental income by 65–80% to account for vacancies and expenses.
Example:
Expected rent: $800/week = $41,600/year
Bank scales it at 70% = $29,120 counted towards your income
They’ll then combine this with your personal income and assess whether you can afford the repayments on both properties at a stress-tested interest rate (currently between 8–9%).
Benefits of Using Equity
1. No Need for a Cash Deposit
If your home has grown in value over time, you can get into the investment market without needing to save a 6-figure deposit.
2. Faster Portfolio Growth
Leveraging equity can speed up your property investment goals, especially if you want to own multiple properties over time.
3. Tax-Deductible Interest
Unlike your own home mortgage, the interest on the investment portion of your lending may be tax-deductible (depending on current legislation and whether it's a new build).
Risks and Things to Consider
1. You're Increasing Your Debt
Using equity means taking on more lending, which increases your risk. It’s vital to ensure the investment property generates enough income to support itself—or that you can cover any shortfall.
2. Property Market Fluctuations
If house prices fall and your equity reduces, your Loan-to-Value Ratio (LVR) may become high, making refinancing or further borrowing difficult.
3. Interest Rate Changes
Even if the property cashflows now, rate increases can create pressure. Always stress-test your own budget using rates higher than current ones.
Should You Use Equity to Invest?
There’s no one-size-fits-all answer. The strategy works well for some and poorly for others. Ask yourself:
Can I afford the mortgage if rent drops or interest rates rise?
Am I buying in an area with strong tenant demand?
Do I understand the responsibilities of being a landlord?
A good mortgage adviser will help you work through the numbers, show you what you can borrow, and help structure the loan to protect your personal home where possible.
Equity is a Tool, Not a Guarantee
Using home equity to buy an investment property can be a smart way to build long-term wealth—if it’s done thoughtfully. The most successful investors combine financial literacy with smart lending strategy and a strong understanding of the market they’re buying in.
Before you make the leap, talk to a mortgage broker about how to structure the loan, what the banks will require, and whether it fits your long-term financial goals.
Mortgage Lab’s mission is to be the digital town square for financial decision-makers to gain knowledge about their current and future mortgage. Follow us on Facebook and LinkedIn or subscribe to our newsletter to be notified of our latest articles.