How to Use Home Equity for an Off‑the‑Plan Apartment Deposit

Using equity in your current home to fund an off‑the‑plan apartment deposit means borrowing against your existing property so you don’t have to save the whole deposit in cash. In practice, you increase your home loan or add a new split, then use those funds to pay the 5–10% deposit when you exchange contracts. The key decision is not “can I?” but “how do I do this without putting my family or future borrowing power at risk?”.

This guide walks you through the structures, numbers, traps and a practical one‑week action plan so you can move from idea to clear decision.

Understanding usable equity is the starting point for funding an off-the-plan deposit.

1. The basics: how equity release for off‑the‑plan actually works

1.1 What is equity and “usable” equity?

Equity is the difference between your property’s value and the total owing on loans secured against it.

• Equity = Property value − Total home loans
• Usable equity is the portion a bank will let you borrow against, based on their maximum loan‑to‑value ratio (LVR), usually 80% for safe, no‑LMI lending.

Example:

• Home value: $1,200,000 (bank valuation)
• Current home loan: $600,000
• Max at 80% LVR: $960,000 (1,200,000 × 80%)
• Potential usable equity: $960,000 − $600,000 = $360,000

You don’t have to use all of that. In fact, most people shouldn’t.

For a deeper dive on safe equity limits, see How to Unlock Home Equity Safely Without Derailing Your Future.

1.2 How does this fund an off‑the‑plan deposit?

When you buy off‑the‑plan, you usually:

1. Pay a 5–10% deposit at exchange of contracts (sometimes more for investors).
2. Pay the balance at settlement, 1–3 years later.

Instead of using cash savings alone, you:

• Apply to increase your current loan (top‑up) or
• Add a new loan split against your home.

Those funds go into your everyday or offset account, then to your solicitor’s trust account for the deposit on the new property.

Your off‑the‑plan lender later takes security over the new apartment at settlement. Your current home stays as security for the equity‑release loan.

1.3 Why buyers do this

Common reasons to use equity for the deposit:

• You have strong equity but not enough liquid cash.
• You want to keep your cash buffer for safety or business needs.
• You’re planning to invest without selling the current home.
• You’re self‑employed and prefer not to strip business cash.

For self‑employed buyers, combine this with the strategies in Smart Deposit Strategies For Self‑Employed First‑Home Buyers.

2. How much equity can you safely use?

The right number is rarely “as much as the bank will lend”. It’s the amount that lets you reach your goal while keeping stress and risk contained.

2.1 Safe LVR ranges

From a conservative perspective:

• Comfortable for most households: Total home LVR at or below 80%
• OK with eyes open: Up to 85–88% where cash flow is strong and risks are understood
• High‑risk zone: 90%+ – more sensitive to valuation drops, higher interest and often LMI

Australian lenders also add around a 3% serviceability buffer above actual interest rates to check you can afford repayments at higher rates (APRA guidance). That’s crucial when you’re taking on a second property.

2.2 Worked example: using equity for a 10% deposit

You want a $900,000 off‑the‑plan unit. The developer requires 10% deposit ($90,000).

Your current position:

• Home value (bank val): $1,000,000
• Current loan: $500,000
• Max at 80% LVR: $800,000
• Usable equity at 80%: $300,000

You decide to:

• Increase your home lending by $100,000 (new split)
• Use $90,000 for the deposit
• Keep $10,000 as extra buffer for legal fees and valuation costs

After the equity release:

• Total home loan: $600,000
• LVR: 600,000 ÷ 1,000,000 = 60% – very comfortable

At settlement (assuming valuation stacks up):

• Purchase price: $900,000
• Deposit already paid: $90,000
• New loan on unit: ~$810,000 (90% LVR) or less if you tip in more cash later

Here, you’ve used equity without pushing your home anywhere near a risky LVR. That’s the core idea of safe structuring.

For another lens on equity safety and buffers, see Using Home Equity Safely for Major Life Moves and Safety Nets.

2.3 Table: common structures for funding deposits

3. The big risks unique to off‑the‑plan

Using equity for a standard established property is one thing. Off‑the‑plan adds extra layers of risk you must plan around.

3.1 Valuation risk at settlement

You exchange contracts now, but your loan is formally assessed close to settlement. If the eventual bank valuation is lower than the contract price, you may have to tip in more cash.

Example:

• Contract price: $900,000
• At settlement, bank values at: $840,000
• Lender max at 90%: $756,000
• Required contribution: $900,000 − $756,000 = $144,000
• You already paid $90,000 deposit from equity
• Extra needed: $54,000 on top of the deposit

If you can’t find that extra $54,000, you risk breaching the contract.

This is why equity release must be paired with cash buffers and Plan B, not used to the last dollar.

For a broader overview of costs and risks, read Planning Deposits and Upfront Costs for Off‑the‑Plan Apartments.

3.2 Time and life‑change risk

Off‑the‑plan projects often take 12–36 months. In that time:

• Your income may change (job change, maternity leave, business downturn).
• Expenses can rise, especially with inflation and interest rate movements.
• Credit policy can tighten.

Lenders must assess your borrowing power at settlement using their current rules and a rate buffered by about 3%. If your situation has worsened, a pre‑approval from 18 months ago may not mean much.

3.3 Cash flow risk from two properties

When you settle the new apartment, you can end up with:

• Your existing home loan (now larger after equity release), and
• A new loan secured against the off‑the‑plan unit.

If you’re holding the existing property as an investment, you also need to consider:

• Likely rent vs repayments
• Tax implications of deductible vs non‑deductible interest
• Periods of vacancy

A basic test is to model your total repayments at 2–3% above current rates and see if your budget still works.