Top tips to refinance and access equity for investment

Can you refinance to pull out equity for an investment property?

You can refinance your home loan to access equity and use those funds as a deposit for an investment property. Lenders typically allow you to borrow up to 80% of your property's current value without paying lenders mortgage insurance, meaning you need at least 20% equity available after accounting for what you still owe.

The amount you can access depends on three things: your property's current valuation, how much you still owe on your mortgage, and whether you can service the additional debt. A couple who bought in Burwood five years ago might have seen their property increase in value significantly, but that alone doesn't mean they can access all the equity sitting in that property. The bank will assess whether your income can support both your existing home loan and the new investment loan you're planning to take out.

Consider a scenario where you own a property valued at $900,000 with $450,000 still owing. At 80% lending, the bank would lend up to $720,000 against that property. Subtract what you owe, and you have roughly $270,000 in accessible equity. That could fund a deposit and purchase costs on an investment property, but only if your income supports the total debt across both loans.

How does a lender value your property when you refinance?

Lenders order their own valuation when you apply to refinance, and that figure might differ from online estimates or recent sales in your street. The valuer considers recent comparable sales, the condition of your property, and current market conditions in your suburb.

In suburbs like Glen Waverley or Box Hill, where property types vary widely, the valuer will focus on properties similar to yours in size, age, and condition. If you've renovated or extended your home since you bought it, that can lift the valuation. If the market has softened or there are fewer recent sales to compare against, the valuation might come in lower than you expect. You can't choose the valuer, and you can't appeal the figure unless there's a clear error in the report.

If the valuation comes in below what you need, you have a few options. You can contribute more cash to the investment deposit, wait and reapply after more sales data becomes available, or consider a different lender whose valuation panel might assess your property differently. Each lender uses a different panel of valuers, and in our experience, switching lenders during a refinance application can sometimes result in a higher figure.

What happens to your borrowing capacity when you add an investment loan?

Borrowing capacity shrinks when you add an investment property because lenders assess rental income conservatively and apply stricter serviceability buffers. Most lenders will only count 80% of the expected rental income, and they'll assess your ability to repay both loans at an interest rate higher than what you'll actually pay.

If you're currently on a low variable rate, the bank might test your serviceability at a rate 3% higher. That means even though you might be paying 6% on your home loan and investment loan, the bank assesses whether you could still make repayments if rates were 9%. This is where many couples get caught. They assume the equity is there, the rental income will cover the investment loan, and everything will work. But the serviceability test can reduce what you're able to borrow by a significant margin.

Your current debts also factor in. If you're carrying a car loan, personal loan, or credit card limit, those reduce your capacity further. Paying down or consolidating those debts before you refinance can open up more borrowing room. A debt consolidation home loan might make sense if it means you can access the equity you need without being knocked back on serviceability.

Should you refinance your home loan and investment loan together or separately?

You can structure this in two ways: refinance your existing home loan and pull out equity in a single transaction, then apply for a separate investment loan, or refinance and set up both loans with the one lender at the same time. Each approach has trade-offs depending on your timing and the investment property you're targeting.

If you refinance first and access equity as cash, you'll have funds available to move quickly when you find an investment property. But holding cash in your offset or redraw means you're not earning much on it, and if the property search takes months, you might be sitting on idle funds. On the other hand, setting up both loans together means you need to have the investment property identified and under contract before the refinance completes, which can create timing pressure.

Some lenders will provide conditional approval for the equity release based on you finding a suitable investment property within a set timeframe. That gives you certainty around how much you can borrow while leaving flexibility to secure the property. In practice, we regularly see couples lock in the refinance on their home first, then move quickly on the investment loan once they've found the right property.

Does your current lender offer the most equity or the most competitive rate?

Your current lender already has your property on file and might offer a faster refinance process, but that doesn't mean they'll provide access to the most equity or the most suitable loan features for your situation. Lenders apply different serviceability policies, different valuation panels, and different loan products depending on whether the lending is for owner-occupied or investment purposes.

A lender that was competitive when you first bought might now have tighter serviceability rules or a valuation panel that tends to be more conservative in your suburb. Another lender might count more of your rental income, apply a lower interest rate buffer, or offer a loan structure with an offset account that lets you park your equity drawdown while you're searching for the investment property. Shopping around isn't just about the interest rate. It's about finding a lender whose policies align with what you're trying to achieve.

If you've been with the same lender for years and haven't reviewed your loan, there's a strong chance you're paying more than you need to. A home loan health check can show whether refinancing to access equity also means refinancing to a more competitive rate and better features.

What costs should you factor in when refinancing to access equity?

Refinancing involves discharge fees from your current lender, application fees with the new lender, valuation costs, and sometimes legal fees depending on how the loan is structured. Discharge fees are typically between $300 and $400. Valuation costs vary depending on property type and location but usually sit between $200 and $600. Some lenders will cover valuation costs as part of a refinance offer, but not all.

If you're still within a fixed rate period, break costs can apply, and those can run into thousands of dollars depending on how much rates have moved since you locked in. If your fixed rate period is ending soon, it's worth timing your refinance to avoid those costs entirely. You'll also need to consider settlement costs on the investment property itself, including stamp duty, conveyancing, and any building or pest inspections. These aren't part of the refinance, but they do reduce how much equity you'll have left after the purchase.

Some lenders allow you to capitalise certain costs into the loan rather than paying them upfront, but that increases your total debt and the interest you'll pay over time. It's a trade-off between preserving cash now and paying more over the life of the loan.

How do offset accounts and redraw work when you access equity?

Once you've refinanced and accessed equity, you'll want somewhere to hold those funds while you're searching for an investment property. An offset account linked to your home loan reduces the interest you pay on the full loan balance, while a redraw facility lets you pull back any extra repayments you've made.

If you access $200,000 in equity and park it in an offset account linked to your $720,000 home loan, you'll only pay interest on $520,000. That keeps your costs down while you're looking for the investment property. A redraw facility can work similarly, but some lenders restrict how often you can access those funds or charge fees for each withdrawal. An offset account offers more flexibility and doesn't usually involve withdrawal limits.

Once you've purchased the investment property, any leftover funds can stay in the offset against your home loan or be moved into an offset linked to the investment loan, depending on how you want to structure your tax position. Interest on your home loan isn't tax deductible, but interest on your investment loan is, so there's a planning element around where you hold surplus cash. A conversation with your accountant before you refinance can save you from restructuring later.

Call one of our team or book an appointment at a time that works for you. We'll assess your equity position, run the serviceability numbers, and help you structure the refinance so you can move on an investment property without unnecessary delays or costs.

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