Using equity to buy an investment property in Australia
Most Australians who buy an investment property do not save a second cash deposit — they use the equity that has built up in their own home. Done well, it is an efficient way to fund a purchase without touching savings. Done carelessly, it can tangle two properties together, blur your tax position and put more of your home on the line than you realised. This guide explains what usable equity actually is, the three ways lenders let you access it, and the structural decisions that matter.
Equity vs usable equity
Equity is the difference between what your property is worth and what you owe on it. Usable equity is smaller: lenders will generally only lend against a property up to a ceiling — commonly 80 per cent of its value without lenders mortgage insurance — so your usable equity is roughly 80 per cent of the property's value minus your current loan balance.
A quick example of the shape (not a prediction of your numbers): a home valued at $1,000,000 with a $500,000 loan has $500,000 of equity, but usable equity of around $300,000 — 80 per cent of value ($800,000) minus the existing loan. Some lenders will go above 80 per cent with LMI, which increases the usable amount at a cost. Our [LVR and LMI calculator](/calculators/lvr-lmi) shows how the ceiling moves.
Three ways to access equity — and why structure matters
Lenders can release equity in three broad ways, and the differences are more important than they look:
- A top-up (increase) to your existing loan. Simple, but it mixes the new borrowing into the same account as your home loan. Because the interest on money used to buy an investment may be treated differently at tax time from the interest on your home, mixing purposes in one account can make the accounting genuinely messy.
- A separate (supplementary) loan against your home. A new, stand-alone loan split secured by your home, used solely for the investment deposit and costs. The purpose of every dollar is clean, which keeps tax records straightforward and gives you flexibility on the loan settings for each purpose.
- Cross-collateralisation. One loan (or lender) takes security over both your home and the new investment property together. It can look tidy, but many borrowers and brokers prefer to avoid it: selling or refinancing either property later needs the lender's consent and a revaluation of what remains, a fall in one property's value can constrain the whole package, and unwinding the structure down the track takes time and paperwork.
The structure most commonly preferred is stand-alone: a separate equity-release loan against your home covering the deposit and costs, and a new loan with any suitable lender against the investment property for the balance. Each property secures its own debt, and each loan has one clear purpose.
The classic funding split: 20 per cent plus costs from equity
A typical structure funds the purchase in two parts. The equity release against your home covers 20 per cent of the purchase price plus transaction costs — stamp duty (transfer duty), legal fees and the rest. A new loan for the remaining 80 per cent is secured against the investment property itself, keeping that loan at or under 80 per cent LVR and avoiding LMI. Estimate the costs side with our [stamp duty calculator](/calculators/stamp-duty), and see our [investment property loans guide](/articles/investment-loans/investment-property-loans-guide) for how the new loan is assessed.
Remember that both loans, plus your existing home loan balance, must pass the lender's serviceability test together — buffered at typically around 3 percentage points above actual rates, with the expected rent shaded. Equity gets you the deposit; income still has to carry the debt.
A 15-minute chat is usually enough to map your options — free, no obligation.
The valuation decides the number
Usable equity is calculated on the lender's valuation, not your own estimate or an app's. Valuations can come in below owner expectations, and different lenders' valuations of the same property can differ. If a valuation lands low, your usable equity shrinks and the plan may need adjusting — a different lender, a smaller purchase, or LMI. A broker can often order valuations with more than one lender before an application is lodged, which turns the valuation from a surprise into a data point.
The risks worth taking seriously
Using equity means your home is doing double duty, and that deserves clear eyes:
- Your home now secures more debt. The equity release is a loan against your house. If the investment goes badly — extended vacancy, a forced sale in a weak market — the debt against your home remains.
- Market falls compress equity from both ends. If values fall, the equity you borrowed against shrinks while the debt does not, and the investment property's value can fall at the same time.
- Higher total repayments. You are servicing more debt across two properties. Buffers matter: rents pause, rates move, repairs arrive unannounced. Model the cash flow at higher rates and with vacancy allowances before committing — our [borrowing capacity calculator](/calculators/borrowing-capacity) is a starting point, and lenders will run a stricter version of the same test.
Keep deductible and non-deductible debt separate
One principle comes up in almost every accountant's advice on this topic, in general terms: keep borrowings for the investment cleanly separated from borrowings for your home. Interest on money borrowed to buy an income-producing asset is generally treated differently at tax time from interest on your private home loan, and redrawing or mixing funds in one account can contaminate that distinction in ways that are hard to fix later. This is precisely why the separate-split structure above is popular. How the rules apply to you depends on your circumstances — speak to your accountant or a registered tax agent before the loans are set up, because the structure is much easier to get right at the start than to repair afterwards.
Talk it through with a broker
An equity release done well is mostly decided before the application: the right valuation, the right structure and a lender whose policy fits your numbers. We can check your usable equity across several lenders, structure the loans so each has a clean purpose, and coordinate with your accountant's advice. [Start an application](/apply) or [get in touch](/contact) to map it out.
This article is general information only and does not take your personal circumstances into account. It is not financial, credit or tax advice — obtain professional advice before acting.
Frequently asked questions
How much equity can I use to buy an investment property?
Usable equity is commonly around 80 per cent of your property's lender-assessed value minus your current loan balance, because most lenders cap lending at 80 per cent LVR without LMI. Some lenders will exceed 80 per cent with LMI. You must also pass serviceability on the combined debt — equity sets the ceiling, income sets the real limit.
Is it better to top up my home loan or take a separate loan?
A separate loan split is generally the cleaner structure, because it keeps the investment borrowing separate from your home loan. Interest on investment borrowings is generally treated differently at tax time from home loan interest, and mixing both purposes in one account makes the records messy. Confirm the right setup for you with your accountant.
What is cross-collateralisation and should I avoid it?
Cross-collateralisation means one loan is secured by both your home and the investment property together. Many borrowers and brokers prefer stand-alone structures instead, because crossed securities make it harder to sell or refinance one property later, and a value fall in one property can constrain the whole package. There are situations where it is used, but it should be a deliberate choice, not a default.
Do I need a cash deposit at all if I have enough equity?
Often no. A common structure funds 20 per cent of the price plus stamp duty and costs from an equity release against your existing property, with the remaining 80 per cent borrowed against the new property. The whole arrangement still has to pass the lender's serviceability assessment on your income and shaded rent.
What if the bank's valuation of my home comes in low?
Your usable equity shrinks, since it is calculated on the lender's valuation, not your estimate. Options include trying another lender — valuations differ between lenders — adjusting the purchase budget, or using LMI to lift the LVR ceiling. A broker can often test valuations with multiple lenders before you formally apply.