Blog · Property investment
Using the equity in your home is one of the most common ways Australians buy their next property. If your home is worth more than you owe on it, you may be able to borrow against that difference to cover the deposit and costs on an investment property, without saving a fresh deposit in cash.
The catch is that equity alone isn’t enough. You still need to show a lender you can afford the repayments, and the way you set the loans up matters more than most people realise.
In this post, we’ll explain how lenders work out how much equity you can use, the main ways to access it, and what to think about before you do.
How much equity can you actually use?
Equity is the difference between what your home is worth and what you still owe on it. But you usually can’t use all of it.
Most lenders will let you borrow up to 80% of your property’s value without paying Lenders Mortgage Insurance. That 80% figure, minus your current loan, is often called your usable equity.
Here’s a simple example:
| Your home’s value | $900,000 |
| 80% of that value | $720,000 |
| Less your current loan | $450,000 |
| Usable equity | $270,000 |
In this example, you’d have around $270,000 you could potentially put towards an investment property’s deposit, stamp duty and other costs. The lender will confirm your home’s value with its own valuation, which can come in higher or lower than you expect.
Can you go over 80%? Yes. Many lenders will let you borrow above 80% of your home’s value, known as your loan to value ratio or LVR. It comes at a cost, though. Going over 80% usually means paying Lenders Mortgage Insurance, which can add thousands of dollars to your loan. For some investors, paying LMI to get into the market sooner is worth it. For others, staying at 80% is the better move. It’s worth running the numbers both ways before you decide.
The main ways to access your equity
A separate loan split. Your lender sets up a new loan against your home, kept separate from your existing home loan, and uses it for the investment deposit and costs. Keeping investment borrowing separate makes it much easier to track, which your accountant will thank you for at tax time.
Increasing your existing loan. This can be simple, but mixing personal and investment debt in the one loan can get messy later. It’s usually not the cleanest option.
A line of credit. This gives you a set limit to draw on as you need it. It’s flexible, but it needs discipline, since the balance doesn’t reduce unless you actively pay it down.
How the security is set up matters too. Some lenders will want to hold both your home and the investment property together as security for all your loans, which is called cross collateralisation. It can work, but it ties your properties together and can make it harder to sell, refinance or change lenders later. In many cases, keeping each property standing on its own is the more flexible approach.
Equity gets you the deposit. Income gets you the loan.
This is the part people often miss. Having $270,000 in usable equity doesn’t mean a lender will approve a loan of any size. You still need to show you can afford the repayments on both your home loan and the new investment loan, with a buffer for higher rates.
Lenders will look at your income, the expected rent from the investment property, your living expenses and your other debts.
For self employed borrowers and business owners, this is where the right lender makes a real difference. Lenders assess business income differently. Some will add back things like depreciation and one off expenses, some will use your most recent year rather than an average, and some offer alt doc options if your returns aren’t fully up to date. The same equity can support a very different investment budget depending on which lender assesses your income.
Things to think about before you use your equity
You’re increasing your debt. Using equity means borrowing more against your home. If rates rise or the property sits vacant for a while, you’ll need to cover the difference.
Keep a buffer. It can be tempting to use every dollar of usable equity. Leaving some untouched gives you breathing room for repairs, vacancies or a quieter month in your business.
Think about ownership before you buy. Whose name the investment goes in affects tax, land tax and future flexibility. It’s worth getting your accountant’s view early. We cover this in our next post on whether you can only buy an investment property in your own name.
Get the structure right from day one. Untangling loans after settlement is far harder than setting them up properly at the start.
Practical tips before you start
- Get a rough idea of your home’s current value, but expect the lender’s valuation to be the one that counts.
- Check your current loan balance and whether your loan has any fixed rate break costs.
- Talk to your accountant about how the investment should be owned and how the loans should be split.
- Have your income documents ready, especially if you’re self employed.
- Get pre approval before you start making offers, so you know your real budget.
The bottom line
The equity you’ve built in your home can be a powerful starting point for your next property. Used well, it can get you into the market years sooner than saving a new deposit. The key is knowing how much you can really use, making sure your income supports the new loan, and setting everything up so it works for you long term.
At Write Finance, we help business owners and self employed borrowers do exactly that, with lenders who understand how your income really works.
Frequently asked questions
How do I use equity in my home to buy an investment property?
Your lender sets up a loan against your home’s equity, usually as a separate split, and you use those funds for the investment property’s deposit and costs. A second loan then covers the rest of the purchase price.
How much equity do I need to buy an investment property?
It depends on the price and your costs. As a rough guide, you’ll usually need enough usable equity to cover a 20% deposit plus stamp duty and fees if you want to avoid Lenders Mortgage Insurance.
How is usable equity calculated?
Most lenders take 80% of your property’s value and subtract what you currently owe. Some will go higher, but you may need to pay Lenders Mortgage Insurance.
Can self employed people use equity to buy an investment property?
Yes. You’ll still need to show your income supports the new loan, but some lenders assess business income more favourably than others, and alt doc options can help if your returns aren’t fully up to date.
Is cross collateralisation a bad idea?
Not always, but it ties your properties together and can limit your flexibility later. Many borrowers are better off keeping each property as separate security.
Download the free Equity Calculator and Checklist
See how much of your equity you could really use. Our free guide includes a simple usable equity calculator, a checklist covering your equity position, borrowing power and plan, and the main ways to access your equity and what to watch out for.
Thinking about your next property?
If you’d like to know how much of your equity you could really use, and how much a lender would let you borrow on top of it, have a chat with our team. We’ll run the numbers and show you the options that fit your situation.
This article is general information only and does not take into account your objectives, financial situation or needs. Lending criteria, rates and fees vary between lenders and are subject to change. Speak with your accountant about tax and structuring, and talk to us about your lending options before acting.
