How to Use Equity as a Deposit for Real Estate Investment

using equity as a deposit

Are you considering tapping into your home equity as a deposit to fund your next real estate purchase? It’s a strategy many homeowners employ to buy an investment property or upgrade their living situation. This comprehensive guide will demystify using home equity as a deposit for purchasing real estate, covering what equity is, how to access it, and key considerations throughout the process.

By the end of this article, you’ll be equipped with the knowledge to leverage your equity effectively. Let’s dive in.

Understanding Home Equity

Home equity represents your ownership stake in your property, calculated as the current market value minus any liens, like a mortgage. As you pay down your mortgage and if your property’s value increases, your equity grows. This equity can be leveraged for further investments, including as a deposit for another property, offering a lower interest rate compared to other borrowing options.

How Equity Works

Equity accumulates as you make mortgage payments, reducing the principal amount owed and as your property appreciates in value. Initially, your deposit contributes to your equity, which then increases with each mortgage payment and any appreciation in your home’s market value.

Calculating Your Available Equity

To determine your accessible equity, start by estimating your home’s current value using recent sales data from websites like or Subtract the remaining balance of your mortgage from this value. For example, if your home is valued at $800,000 and you owe $400,000, you have $400,000 in equity.

Accessing Your Equity

To leverage your equity as a deposit, you can’t simply withdraw it as cash; it requires leveraging the property’s value. Here are methods to access your equity:

  • Home Equity Loan: Also known as a second mortgage, this option allows you to borrow a lump sum against your home’s equity at a fixed rate over a set period.
  • Cash-Out Refinance: This involves obtaining a new, larger mortgage that pays off your existing one, using the surplus as your deposit for a new property purchase.

Increasing Your Equity

Boost your equity by making a sizable initial deposit, selecting the right mortgage type, keeping up with payments, and possibly waiting for your property to appreciate. Additionally, home improvements can significantly increase your property’s value and, consequently, your equity.

Pros and Cons of Using Equity as a Deposit


  • Lower-cost access to a deposit.
  • Lower interest rates than alternative financing options.


  • Potentially more overall debt.
  • Risk of additional fees increasing repayments.

Applying for an Equity Loan

Contact your bank or use their online banking platform to initiate the application process, which mirrors that of applying for your initial home loan. Understand all terms, conditions, interest rates, and associated fees before proceeding.

Lender’s Mortgage Insurance (LMI)

considerations with using equity

Accessing more than 80% of your property’s value may require paying LMI, an added cost to consider in your calculations.


Leveraging home equity is a powerful strategy for expanding your real estate portfolio or upgrading your home. With a solid understanding of how to access and use your equity wisely, you’re well on your way to making informed investment decisions.

Remember, knowledge isn’t just power—it’s also the key to successful property investment.

If you need some help finding the perfect property, we can help! Reach out to our expert team here.

peter new profile

To put it mildly, Peter Kelly is enthusiastic about real estate. When he’s not looking at properties, or visiting potential sites, Peter can be found online at realestate. com. For him, it’s more than a job – it’s an obsession. Peter is a co-founder here at Little Fish Real Estate.