Proven tips to use home equity for investment property

You don't need to save a second deposit if you already own property.

If you've built equity in your home, you can use that equity as a deposit for an investment property without selling your current place or waiting years to save again. The principle is called leverage, and it's one of the most practical ways to build a second income stream or grow wealth through property without starting from zero.

How equity release works for investment purchases

You borrow against the value of your existing property to fund the deposit and costs for a second property. Your current home acts as security, and the lender calculates how much you can access based on the combined loan to value ratio across both properties. If your home is worth $600,000 and you owe $350,000, you have $250,000 in equity. Most lenders will let you access up to 80 per cent of your home's value without paying Lenders Mortgage Insurance, which means you could borrow up to $480,000 in total across both loans. That leaves $130,000 in usable equity after your existing debt is deducted.

That $130,000 can cover the deposit, stamp duty and settlement costs on an investment property. The new investment loan sits separately from your home loan, even though both are secured by the same property initially. Once the investment property settles, it becomes additional security. We regularly see clients use this structure to buy their first investment property while continuing to live in their existing home.

Borrowing capacity is tested against both properties

The lender assesses whether you can service both your existing home loan and the new investment loan at the same time. They add your salary and a portion of the expected rental income, then subtract your current home loan repayment, the new investment loan repayment and your living expenses. The investment loan repayment is tested at a rate at least 3 percentage points above the actual loan rate under current APRA requirements. Rental income is typically shaded by around 20 per cent to account for vacancy and holding costs.

Consider someone earning $85,000 a year with a $350,000 home loan. They want to buy an investment property and borrow an additional $450,000. The rental income on the investment property is $480 per week. The lender will test serviceability using approximately $380 per week of that rental income and assess the new loan repayment at a rate around 3 percentage points higher than the advertised rate. If the numbers don't leave enough buffer for living expenses, the loan amount may need to be reduced or the purchase delayed until income increases.

Interest-only repayments reduce holding costs during the rental phase

Most investors choose interest-only repayments on the investment loan for the first few years. You're only paying the interest portion each month, which keeps the repayment lower and improves cash flow while the property is tenanted. The loan balance doesn't reduce during the interest-only period, but the rental income covers more of the holding cost and you're not paying down a property you don't live in while still managing repayments on your own home.

Interest-only periods typically run for one to five years, after which the loan reverts to principal and interest unless you request an extension. The choice depends on your income, your tax position and whether you want to reduce debt or maximise cash flow. Interest on an investment loan is tax deductible, so many investors prefer to pay interest only and direct surplus income toward their non-deductible home loan instead. That approach is sometimes called debt recycling when structured deliberately, and you can read more about debt recycling if that structure suits your position.

Negative gearing rules changed in the most recent tax reform

From the 2027-28 income year, losses on established investment properties purchased after May 2026 can only be offset against income from other residential properties, not against your salary. Properties purchased before that date, and new builds purchased at any time, are exempt. If you're considering an investment property purchase using equity release, the timing and type of property you buy will affect how rental losses are treated for tax purposes.

An investor who buys an established property now and makes a rental loss of $8,000 in the 2028 financial year won't be able to deduct that loss against wage income. The loss can be carried forward and used against future rental income or a capital gain when the property is sold. An investor who buys a qualifying new build can still deduct the loss against their salary under the exemption. The new build definition is strict and applies only to properties constructed on previously vacant land or where the dwelling count increases. Renovations and knock-down rebuilds that don't add dwellings aren't eligible.

You should speak with an accountant about how the tax changes apply to your situation before you commit to a purchase, particularly if you're a single income earner and were relying on negative gearing to reduce your taxable income.

Investment loan features that support long-term holding

Most investment loan products include an offset account, redraw facility or both. An offset account linked to your investment loan reduces the interest charged each month without affecting the deductibility of the interest. If your investment loan balance is $450,000 and you hold $20,000 in the offset account, you only pay interest on $430,000. The offset balance remains accessible, and the full loan balance stays intact for tax purposes.

Redraw lets you access any extra repayments you've made above the minimum. It's less flexible than an offset account because the funds are held within the loan structure rather than in a separate transaction account, but it serves a similar purpose. Both features give you flexibility to manage cash flow across your home loan and investment loan without locking funds away.

Some lenders also allow you to split your investment loan between variable and fixed rates. You might fix half the loan to lock in repayments for two or three years and leave the other half variable to retain flexibility and access to features like offset and redraw. The split structure is common when interest rates are shifting and you want some certainty without losing access to your loan features entirely.

Refinancing to access equity is different from a top-up

If your current lender won't increase your borrowing or the rate isn't suitable for an investment loan structure, you can refinance your home loan to a new lender and access the equity at the same time. The new lender pays out your existing home loan and provides the additional funds you need for the investment deposit and costs. Both loans are then managed with the new lender, often at a lower rate than your current loan if you've been with the same lender for several years without reviewing your position.

Refinancing gives you the chance to restructure your loans so the investment debt and the owner-occupied debt are separated from the start. Keeping the two loans separate makes tax time clearer because all the interest on the investment loan is deductible and none of the interest on the owner-occupied loan is. Mixing the two in a single loan structure creates complications if you later want to claim deductions or sell one property.

You can also refinance your investment loan separately after purchase if a better rate or product becomes available. The process is the same as refinancing a home loan, but the paperwork requires rental income evidence and a lease agreement as part of the application.

You can use equity for the deposit but still need to service both loans

The equity covers the upfront cost, but your income needs to support the ongoing repayments on both your home and the investment property. If your income is limited or your current home loan is already close to your borrowing limit, accessing equity might not be possible until your financial position improves. Lenders won't approve an investment loan if the numbers don't show you can meet both repayments consistently, even with rental income included.

Some clients increase their borrowing capacity by paying down existing debt, increasing their income or adding a co-borrower before applying for the investment loan. Others wait until their home loan balance drops or their property value rises, which increases the usable equity without requiring additional savings. The timing depends on your circumstances and where you're trying to buy. Expanding your property portfolio involves balancing opportunity with sustainability, and that means knowing when your position is strong enough to support a second property.

Call one of our team or book an appointment at a time that works for you if you want to understand how much equity you can access and whether your income will support an investment purchase. We'll review your current loans, run the borrowing capacity numbers and structure the application so both properties are held appropriately from the start.

Frequently Asked Questions