How to Use Home Equity to Buy an Investment Property in Australia

You’ve been paying off your home for a few years. You’ve built up some equity. And now you’re wondering whether you can use that equity to get into the investment property market — without needing to save another deposit from scratch.

The answer is yes. And for many Australian investors, using home equity is exactly how they buy their second (and third, and fourth) property.

But there’s a right way to do it — and a way that can leave you overexposed. Here’s everything you need to know.

What Is Home Equity?

Home equity is the difference between what your property is worth and what you still owe on it.

If your home is worth $800,000 and your mortgage balance is $500,000, you have $300,000 in equity.

Simple enough. But the equity you have isn’t the same as the equity you can actually use.

What Is Usable Equity?

Lenders don’t let you borrow against 100% of your property’s value. Most require you to keep at least 20% of the property’s value as a buffer — both to protect them and to avoid Lenders Mortgage Insurance (LMI).

The formula for usable equity is:

Usable Equity = (Property Value × 80%) − Remaining Mortgage Balance

Using the example above:

• Property value: $800,000
• 80% of property value: $640,000
• Minus mortgage balance: $500,000
• Usable equity: $140,000

That $140,000 is what you could potentially access to use as a deposit on an investment property.

How Much Investment Property Can You Buy With That Equity?

If you have $140,000 in usable equity and you use it as a 20% deposit, that means you could purchase an investment property worth up to $700,000 — with an 80% investment loan of $560,000 on top.

Of course, you’d also need to factor in stamp duty and purchase costs (typically 3–5% of the purchase price depending on the state), so your actual buying capacity will be slightly lower.

But the key point is this: you don’t need to save a fresh cash deposit. Your existing property does the heavy lifting.

How Do You Actually Access the Equity?

There are three main ways Australian investors access home equity:

1. Refinance and Top Up Your Existing Loan

You refinance your current mortgage to a higher amount, pulling out the extra equity as cash (or as a separate loan split). This is the most common approach.

For example: your current loan is $500,000. You refinance to $640,000 (the 80% LVR limit on an $800,000 property). The extra $140,000 sits in an offset account or gets released to use as a deposit.

2. Line of Credit (Home Equity Loan)

Some lenders offer a revolving line of credit secured against your home. You draw down what you need, when you need it. This can be flexible, but interest rates are often slightly higher — and it’s easy to let the balance creep up if you’re not disciplined.

3. Cross-Collateralisation

This is where your lender uses both your existing home and the new investment property as security for the investment loan. It sounds convenient, but most experienced investors avoid this — it locks your properties together, reduces your negotiating power, and makes it harder to sell or refinance one property independently.

In most cases, keeping your properties as separate loans with separate security is the cleaner approach.

A Real-World Example

Let’s say Priya and Dev bought their home in Brisbane in 2019 for $620,000. By 2025, it’s worth $900,000. Their remaining mortgage is $410,000.

Their usable equity:

• $900,000 × 80% = $720,000
• $720,000 − $410,000 = $310,000 in usable equity

They refinance and access $310,000. They use $200,000 as a 20% deposit on a $1,000,000 investment property in Perth, with the remaining $110,000 covering stamp duty, legal fees, and a cash buffer.

Their new investment loan: $800,000 at 6.2% interest only = approximately $49,600/year in interest.

If the Perth property rents for $650/week ($33,800/year), they’re negatively geared — the property costs more to hold than it earns. But they’re building an asset base with no cash deposit from savings.

What Do Lenders Actually Assess?

Accessing equity sounds straightforward. But lenders don’t just look at your equity — they assess your full financial picture:

• Serviceability: Can you afford repayments on both your existing loan and the new investment loan? Lenders stress test at around 3% above the actual interest rate.
• Income: PAYG salary, rental income (typically counted at 70–80%), business income, etc.
• Existing debts: Credit cards, car loans, HECS, any other liabilities all reduce your borrowing capacity.
• Credit score: A clean credit history is important — especially when borrowing at higher amounts.

The equity might be there on paper. But if your income doesn’t comfortably service both loans, the lender won’t approve the deal.

Tax Considerations When Using Equity

This is an area where many investors get confused — and where getting it right matters.

Interest on the investment loan is tax-deductible. If you borrow $800,000 to purchase an investment property, the interest on that $800,000 is deductible against your rental income (and potentially your other income if the property is negatively geared).

However, the interest on the equity you pull out of your home is only deductible if those funds are used for investment purposes. If you refinance your home loan and use $50,000 of the equity for a renovation and $150,000 for an investment deposit, only the $150,000 portion generates a deductible interest claim.

This is why it’s worth keeping investment funds in a separate loan split — it makes record-keeping and tax time far cleaner. Talk to your accountant before you structure the loan.

The Risks to Know Before You Act

Using equity to invest is a powerful strategy — but it comes with real risks that every investor should understand:

• Property values can fall. If your home drops in value, your equity shrinks — or disappears. If you’ve already borrowed against it, you could end up in negative equity.
• Rental income isn’t guaranteed. Vacancies happen. If you’re relying on rent to service a negatively geared property, a period without a tenant puts pressure on your cash flow.
• Interest rates can rise. Borrowing at 6% feels manageable. At 8%, the same loans look very different. Always stress-test your numbers.
• Serviceability can become an issue. Holding two large mortgages limits your future borrowing capacity — which matters if you want to keep building a portfolio.

Is Using Equity the Right Move for You?

Using equity makes sense when:

• You have meaningful usable equity (at least $80,000–$100,000 to work with after costs)
• Your income comfortably services both loans
• You’ve identified a property in a market with strong fundamentals
• You have a cash buffer (3–6 months of repayments) for unexpected costs
• You’ve spoken to a mortgage broker and accountant about the structure

It’s worth pausing if:

• Your current loan is already stretched
• You don’t have a cash buffer
• You’re relying entirely on rental income to service the investment loan
• You haven’t factored in property management fees, maintenance, insurance, and vacancy periods

Step-by-Step: What the Process Looks Like

1. Get a property valuation — either through your lender or an independent valuer. This determines how much equity you actually have.
2. Work out your usable equity — apply the 80% formula above.
3. Talk to a mortgage broker — they’ll assess your serviceability across multiple lenders and find the best structure.
4. Refinance or restructure your existing loan — set up a separate loan split for the equity you’re releasing.
5. Use the equity as your deposit — on the investment property, you’ll take out a separate investment loan for the remaining 80%.
6. Set up a depreciation schedule — once you’ve purchased, engage a quantity surveyor to maximise your depreciation claims. (We’ve written a full guide on this here.)

Final Thoughts

For many Australian investors, using home equity is the bridge between owning one property and building a real portfolio. It removes the single biggest barrier — saving another deposit — and lets your existing asset work for you.

But it’s not a shortcut that bypasses risk. Done carelessly, it can overextend you. Done properly — with the right structure, the right property, and a clear buffer — it’s one of the most effective tools available to Australian investors.

Take the time to understand your numbers, get the right advice, and move when you’re confident. Not when you’re just excited.

One Property at a time
Brick by Brick 🧱

General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.