Usable Equity Explained

Equity vs Usable Equity

These two terms get used interchangeably, but they're different numbers - and the difference matters.

Equity is the simple one: what your home is worth minus what you still owe. Own a $700,000 home with $350,000 left on the mortgage? You have $350,000 of equity. It's yours - you built it with every repayment, and the market added to it every time your home's value grew.

Usable equity is the portion of that a lender will actually let you borrow against. Lenders don't lend against every last dollar of your home's value - they generally work off around 80% of it, keeping a buffer in the property. So your usable equity is always smaller than your total equity, and it's the number that actually determines what you can do next.

The 80% Rule of Thumb

Here's the whole formula, in one line:

Why 80%? Because lenders typically want roughly 20% of the home's value left untouched as a safety margin - for you and for them. Borrow beyond that and things like lenders mortgage insurance start entering the conversation, which is a topic for your broker. As a planning number, 80% is the honest rule of thumb.

One more thing worth knowing: usable equity is about your home. What you can borrow overall also depends on your income and expenses - lenders check both. Our guide on how much you can borrow covers that second half of the picture.

A Simple Worked Illustration

Meet a hypothetical family with a $700,000 home and $350,000 still owing:

This is a general illustration only, not a forecast, quote or recommendation. The figures are rounded, hypothetical numbers used to show how the arithmetic works. Your actual usable equity depends on a lender's valuation of your home, their lending criteria and your circumstances. Property values can fall as well as rise. Seek independent professional advice before making any financial decisions.

Notice the gap: this family has $350,000 of equity but around $210,000 of usable equity. Still - $210,000 is a serious number. In many markets that's a deposit and purchase costs on an investment property, with room to spare. If you want to see exactly how that plays out, our guide on how to use your home's equity to buy an investment property walks through the whole mechanism.

What Changes Your Usable Equity

Usable equity isn't a fixed number - it moves, and mostly in your favour if you own your home long enough. Three things change it:

Why "I Don't Have the Deposit" Is Often Wrong

Ask most homeowners why they haven't bought an investment property, and the answer is some version of "we could never save the deposit." And on one level it's fair - saving a six-figure sum from a family budget is genuinely hard.

But it's usually the wrong question. The deposit doesn't have to come from savings. If you've owned your home for a while, you may have already saved it - in the form of usable equity. You saved it through every repayment, and the market topped it up. It's just sitting in the walls of the house you live in, doing nothing.

That's the difference between owning a home and building wealth: putting that number to work. Whether that's the right move for you - versus, say, simply paying the mortgage down faster - is a real question worth weighing honestly. We've compared the two in invest or pay off the mortgage.

How to Find Out Yours

You can get a rough figure right now: take a realistic estimate of your home's value, multiply by 0.8, and subtract your current loan balance. That's your back-of-the-envelope usable equity.

For the real picture - your equity, your borrowing position and your goals mapped out together - the Delphi Scorecard takes under 5 minutes and shows you where you stand. Most people are further along than they think.

And if the number looks interesting, book a free chat - we'll walk through it in plain English, answer every question, and only talk next steps if it makes sense.

General information only. Not personal financial advice.