Most lenders don’t allow you to use all the equity in your home. This is because the new loan could be worth more than the property if prices were to fall in the future. So, typically, they’ll lend you up to 80% of the value of your property – though this depends on your individual financial circumstances such as income, credit score and lifestyle.
As such, the amount of equity you can use in a property is 80% of the current value of your home less your current mortgage.
Using the previous example, your useable equity is calculated as follows:
● Current value = $800,000
● Value at 80% = $640,000
● Outstanding mortgage = $300,000
● Useable equity = $640,000 - $300,000 = $340,000