Property equity vs borrowing power

I have question regarding buying second property via equity. Is the equity consider as part of the amount in my borrowing power?

Example
Owner Occupied
Purchased Value - $500k
Loan Amount - $400k
Current Value - $600k
Loan Balance - $300k
Equity is $200k ??

If I want to purchase an investment property value at $500k and my borrowing power is $300k, can I use the $200k equity as deposit and borrow $300k? Or the $200k equity is a consider as extra loan in Property 1 and I left $100k borrowing power?

Thank you.

 

Some banks let you borrow up to 80% of the value when accessing equity.

So if it’s worth $600k - you could borrow up to $480k which is a $180k equity release.

Borrowing capacity is a different ball game though - it doesn’t matter how much equity you have. You still need to demonstrate an ability to repay the debt.


Cheers

Jamie

 

Don't think equity, think borrowing.
You don't use the equity but borrow against property with equity. This tends to confuse people.

If your servicing is limited to $300,000 you will be needing $500,000 if you 'tap into' the $200k equity so you won't qualify - assuming the figures are correct.

 

Thanks guys!! Your explanations clear my confusions!
At the end I still need to generate more income to borrow more!

 

When you borrow money, lenders want to see two fundamental things.

1. There is enough security to cover the debt. Equity can help achieve this.

2. Enough income to repay the debt. Equity does not help with this.

If you want to buy a house worth $500k and you don't have any cash, you can borrow the full purchase price assuming you have the income to afford the repayments on $500k and you have some additional security (which could be equity in another property).

Having equity does not increase the amount you can afford to borrow, nor does it allow the bank to simply give you more money for nothing.