Equity is basically the difference between the value of an asset (in this case, property) and the amount you owe on that property.  So for example, if you have a house worth $400,000 and you have a $100,000 mortgage on it, you have $300,000 of equity in the property.  You could use that equity to obtain finance to buy other properties, rather than having to provide the deposit from your own money.

For example:

• Todd and Jenny’s family home is worth $400,000, with a mortgage of $100,000, so their equity in their home is $300,000.
• They want to buy a rental property worth $300,000 by borrowing 100% of the purchase price.
• The bank effectively groups the value of the two properties.  So in this case Todd and Jenny are offering property worth $700,000 (their home and the rental property) as security, and borrowing $400,000 (their existing mortgage and the new mortgage for the rental property). 
• Using their existing equity makes it possible for Todd and Jenny to borrow more than they may be able to otherwise.

Existing equity may be used in this way even if the ownership of the properties is held by different legal entities. For example, if Todd and Jenny’s family home is owned by a family trust, but they want to purchase the rental property in a LAQC structure (see our section on Ownership Structures for more information), however, the Bank may require guarantees to be provided if this is the case.

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This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.