Your home’s equity
Using your home equity NZ
Home equity is the part of your home you own outright. You can borrow against it for renovations, an investment property deposit or to tidy up debt. The question is how, and whether you should.
By Yatin Kainth, Financial Adviser. Last reviewed
Home equity is your property’s value minus your mortgage. Most banks let owner-occupiers borrow up to 80% of the value, so equity above that can often be accessed by topping up your existing loan. A second mortgage from another lender is possible, but it usually costs much more and is best kept short term.
How much equity can I access?
| Example | Amount |
|---|---|
| Home value | $900,000 |
| 80% of value | $720,000 |
| Current mortgage | $500,000 |
| Equity you may be able to borrow | up to $220,000 |
You still need the income to service the extra debt, and the Reserve Bank’s loan-to-value and debt-to-income rules apply.
Your equity is only as good as the value the lender accepts. See property valuation NZ for how CV, registered valuations and online estimates compare.
Top-up or second mortgage?
A top-up with your current lender is the usual route. You borrow more on the same mortgage, at home loan rates.
A second mortgage is a loan from a different lender that sits behind your main mortgage. It’s used when your bank won’t lend more, often for short-term needs or business purposes. Rates are higher, terms are shorter, and your first lender may need to consent. I treat it as a bridge to a better long-term solution. See non-bank lenders.
Common ways people use equity
- Renovations: see renovation loans.
- A deposit for an investment property: see property investment loans.
- Consolidating expensive debt such as credit cards or car loans: see debt consolidation.
- Helping family, for example as a guarantor. That has serious risks, so get independent legal advice.
The catch with using equity
Moving short-term debt onto a 25-year mortgage can cost more in the end if you only pay the minimum. When I set up a top-up for debt consolidation, I usually put it on a separate loan with a shorter term, so it’s actually cleared.
Common questions
How do I find out how much equity I have?
Take your home’s current value and subtract what you owe. A bank valuation or registered valuation gives the figure lenders will use. An online estimate is only a guide.
Can I use equity for a deposit on another house?
Yes, it’s common. For an investment property, most lenders want a larger deposit than for a home you live in, unless it’s a new build.
Is a second mortgage a good idea?
Usually only as a short-term solution when your main lender won’t top up. It costs more, so have a clear plan to repay or refinance it.
Does using equity affect my existing fixed rate?
The top-up is normally set up as a new loan portion with its own rate, so your existing fixed rate usually stays in place.