Should you increase your mortgage when buying a second home?

Written by Money Empire

December 3, 2018

You’ve started to get your mortgage on your first home under control. The idea of purchasing an investment property or a second home has crossed your mind, but you don’t have any savings to draw on.

Should you consider increasing your mortgage to buy a second house?

How to use equity from your first home to buy your second

The equity you have in your home is the difference between its market value and what you still owe against it. When calculating this, use a current registered valuation on your home, as what the property is worth might have changed since you bought it.

You’re able to borrow against that equity when purchasing a new property, as long as you abide by the RBNZ loan-to-value(LVR) ratio restrictions. Depending on what you’re buying, there’s a chance you’ll need to keep 20-35 per cent equity in your house, limiting how much you can increase your mortgage by.

You’ll also need to have a good payment record, and your debt-to-income ratio approved by your lender as with any other loan.

Market fluctuations can change how much equity you have in your home.

The pros and cons of increasing your mortgage to buy another house

Increasing your current mortgage to buy another house has both pros and cons. Before deciding that it’s the right option for you, being aware of what it’ll mean in the long run is important. As there are many different ways you can leverage your equity, it’s also essential to understand what each one does, and how they’ll affect your property portfolio. Talking to someone who knows the industry can help ensure you make the right decisions for what you need.


  • The chance to restructure your mortgage – with your new valuation, now can be a good time to consider your options, and possibly break and re-fix your mortgage to get a better deal. Moving it to a lower rate, though it might increase the payment period, can make the mortgage repayments manageable when increasing your lending.
  • You can grow your property portfolio – by leveraging your equity, you can make it work for you and build upon your empire. With a good plan in place, and bringing in the right advice, it’s possible to grow your investments faster than by waiting until you’ve once more saved a deposit.


  • You might damage your credit scorewhen trying to find out how much lenders will loan you, engaging a mortgage advisor is your smartest option, as it can protect your credit score. It also saves you the hassle of making the applications.
  • Market values might drop – while house prices fluctuate, the value of your loan doesn’t. If the market drops, there’s the risk that you’ll end up owing more than the value of your home.
  • Managing the mortgage payments on a larger loan – increasing your mortgage means being more susceptible to interest rate increases, or income changes, once more.

If you’d like to know more about growing your empire, and making your mortgages work for you, talk to the team at Money Empire today.

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