Equity Calculator / Leverage Calculator

Use this equity & leverage calculator to find out how much you can afford for your next investment property.

1601614029185

Ed McKnight

Economist, property investor and host of the Property Academy Podcast
Equity and Leverage Calculator

Equity and Leverage Calculator

About The Calculator

Equity and Leverage Calculator

Many property investors use their existing home to secure the deposit for an investment property. This equity calculator shows you how much useable equity you already have in your home. It then shows you how much you could afford to borrow based on that useable equity.

To see what the property might be worth over time, use our capital growth calculator to estimate what the returns of the investment might be.

Outputs From the Calculator

Outputs From the Calculator

Maximum Ability to Borrow

This is the maximum you can borrow within the Reserve Bank's Loan to Value Ratio restrictions.

You may be able to borrow more than this in some circumstance by securing a 90% loan. It is best to talk to us or a mortgage broker to see whether the banks may be willing to lend to you with a smaller deposit.

Equity

This is the wealth that you personally have in your property. This is calculated by taking the value of your property and subtracting the value of the mortgage.

Useable Equity

This is the amount of equity that can be used to secure the deposit for an investment property.

This is calculated by taking your equity (mentioned above) and subtracting 20% of your property's value, which is what we sometimes call the "bank's comfort.

home equity NZ loan

Assumptions

The equity and leverage calculator makes some underlying assumptions:

  • That the property you are leveraging is an owner-occupier home, rather than an investment property. Leveraging an investment property requires a higher level of equity in the property, and your useable equity will be lower than what is shown within the calculator.
  • That you will purchase a brand new property, which will be leveraged at 80% borrowing. This is the maximum amount you can borrow within the New Zealand Reserve Bank's Loan to Value Ratio restrictions.

This also has implications for the cash flow of the property. Use our property investment calculator to see how the condition of the property impacts the cost to hold it.

One way to create more useable equity is by increasing your payments on your mortgage, which will pay down your principal more quickly. To calculate your mortgage repayments, use our mortgage calculator.

You may also want to see whether the property will earn you money each week, or require an additional investment to keep going. Use our rental yield calculator to run these numbers.

FAQs

Frequently Asked Questions About Equity

What is equity?

This is the wealth that you personally have in your property. This is calculated by taking the value of your property and subtracting the value of the mortgage.

How do you calculate equity?

You calculate how much equity you have in your house by taking the current market value of the house (what its worth) and deducting the amount of mortgage you currently have owing on the property.

For example, if your house is currently worth $700,000 and your mortgage is $250,000 then your equity will be $450,000

In simple terms, this means that you own $450,000 worth of the property and the bank owns the other $250,000.

What percentage of equity can I borrow?

The percentage of equity that most lenders let you borrow is 80%. This is called 'useable equity'. What this means is if you have a $500,000 house and your mortgage is $260,000 you have $240,000 of equity. 80% of $240,000 is $192,000 which is the amount you can borrow.

What is 20% equity in a home?

Equity is the value of the property that you own. When you first purchase a property you normally use a 20% deposit. This means you own 20% of the property and this is what 20% equity in a home refers to

Can I use equity in my home to get another loan?

Yes you absolutely can through using your 'useable equity'.

This is the amount of equity that can be used to secure the deposit for an investment property.

This is calculated by taking your equity (mentioned above) and subtracting 20% of your property's value, which is what we sometimes call the "bank's comfort.

1601614029185

Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.