Can I use my home equity to buy an investment property?

The direct answer

Yes. If you have built up equity in your home (the difference between what it is worth and what you owe), you can use it as the deposit for an investment property. Most lenders allow you to borrow up to 80% of your home's value, and the gap between your current loan and that 80% is your usable equity.

How equity release works for investment purchases

Equity release is the process of unlocking the value you have built up in your home and turning it into accessible funds. Your lender increases your home loan - or sets up a new loan split against your property - up to 80% of its current value. The cash difference between your existing loan and that 80% ceiling can then be drawn as a deposit for the investment purchase.

The equity release and the investment property loan are usually kept as separate loan facilities, even if they are with the same lender. This keeps the borrowing clearly structured and, importantly, keeps the tax positions clean - the interest on the equity release portion (used for investment) is generally deductible, while the interest on your original home loan is not.

The numbers - a worked example

Imagine your home is currently valued at $900,000 and you owe $450,000 on the mortgage. Eighty percent of $900,000 is $720,000. Your usable equity is $720,000 minus $450,000 = $270,000.

That $270,000 can be used as the deposit and purchase costs for an investment property. If you are buying a $700,000 investment property, you need roughly $140,000 deposit (20%) plus stamp duty and costs of around $30,000 - a total of approximately $170,000. Your usable equity of $270,000 is more than enough, with room to spare.

What lenders assess - both properties, both loans

When you apply for this type of structure, lenders assess the combined debt position across both properties and your capacity to service all loans - including the investment property loan at an investment rate, which is typically slightly higher than owner-occupied rates. Your rental income from the investment property is usually counted at around 75-80% of the market rent (to allow for vacancy and management costs).

Lenders will also look at your existing home loan repayments plus the new investment loan repayments plus the equity release repayments to ensure the total debt is serviceable on your income. This is why having a broker model the structure before you commit is important - different lenders assess rental income and investment loans differently.

Risks to understand before using equity

Using home equity to buy an investment property increases the total debt secured against your home. If property values fall, you could find yourself in a position where you owe more than your properties are worth. If the investment property experiences extended vacancy or your income is disrupted, you need to service both loans from your own funds.

The key risk management principles are: do not over-leverage (keeping LVR below 80% across the portfolio avoids LMI and leaves a buffer), maintain a cash reserve for contingencies, and structure the loans so your home and investment property are not cross-secured if possible - this protects your home if the investment performs poorly.

Common questions

Frequently asked questions

How much equity do I need to buy an investment property?

You generally need enough usable equity to cover the investment deposit (typically 10-20% of the purchase price) plus stamp duty and purchase costs. Usable equity is calculated as 80% of your home's current value minus your existing loan balance. A lender or broker can run the numbers for your specific situation.

Will my home be at risk if I use equity to buy an investment property?

Using equity increases the debt secured against your home, which does carry risk. If the investment property performs poorly or you experience income disruption, the additional debt could put pressure on your finances. However, keeping the loans on separate properties (cross-securitisation is generally avoidable) limits the lender's ability to call on your home if the investment property has problems.

Is the interest on equity released for investment tax deductible?

Generally yes - if the equity release is used directly to purchase an investment property, the interest on that portion is tax deductible because the funds are used for income-producing purposes. The interest on your original home loan remains non-deductible. Always confirm the specific structure with your accountant before proceeding.

Can I use equity from one property to buy multiple investments?

Yes, provided you have sufficient usable equity and your income can service all the loans. As properties grow in value and loans are paid down, equity compounds across your portfolio. Many experienced investors use equity from existing properties as deposits for subsequent purchases to keep growing their portfolio.

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The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.