Can You Use Your Home Equity to Buy an Investment Property?
Written by Kim Skilton | Mortgage Broker
In this article:
How home equity and usable equity work
How you can potentially use equity to buy an investment property
The difference between equity and borrowing capacity
What lenders consider when assessing your investment property loan
What to consider before using your home equity to invest
Yes, you may be able to use the equity in your existing home to help buy an investment property. But having equity does not automatically mean you can borrow the same amount.
Your available equity is only one part of the lending picture. Lenders will also consider your income, existing debts, living expenses, credit history, the proposed investment property and whether you can comfortably service the additional lending.
For established homeowners, this can be an important question: “I’ve built up equity in my home — what could it potentially help me do?”
At Maison Mortgages, we believe the answer starts with understanding your numbers before you start looking at investment properties.
What is home equity?
Home equity is the difference between the current value of your property and the amount you owe on your home loan.
For example:
Property value: $900,000
Existing home loan: $400,000
Equity: $500,000
That doesn't necessarily mean you can access $500,000.
Lenders generally take into account the amount they are prepared to lend against the property, as well as your existing debt. The amount you may be able to access is often referred to as usable equity.
A commonly used starting point for estimating usable equity is:
80% of your property's value – existing home loan = potential usable equity
Using the example above:
$900,000 × 80% = $720,000
$720,000 – $400,000 = $320,000 potential usable equity
This is an illustration only. The amount you can actually access will depend on the lender, your circumstances, the property's valuation and the overall lending assessment.
Can I use equity in my home as a deposit for an investment property?
Potentially, yes. Rather than saving a separate cash deposit, some established homeowners use equity in their existing property to help fund the deposit and purchasing costs associated with an investment property.
For example, your lending structure might involve:
Your existing home loan
Additional lending secured against your existing property
A separate investment loan secured against the investment property
The exact structure will depend on your circumstances and lender requirements.
It's also important to remember that buying an investment property involves more than the purchase price. Depending on the state and transaction, there may be costs such as stamp duty, conveyancing, legal fees, inspections and other purchasing expenses.
That's why the conversation shouldn't simply be:
“How much equity do I have?”
It should be:
“What could my current property and financial position potentially support?”
How much equity do I need to buy an investment property?
There isn't one fixed amount of equity you need.
The amount required will depend on factors including:
The purchase price of the investment property
The deposit required
Stamp duty and other purchasing costs
The lender's maximum loan-to-value ratio (LVR)
Your existing home loan balance
The value of your current property
Your income and other debts
Your borrowing capacity
The expected rental income
The lender's assessment criteria
This is why two homeowners with the same amount of equity could have very different borrowing outcomes.
Equity and borrowing capacity are not the same thing.
That's one of the most important distinctions to understand before using your home equity to invest.
Equity vs borrowing capacity: what's the difference?
Think of it this way:
Equity answers:
“How much value have I built up in my property?”
Borrowing capacity answers:
“How much additional debt could I potentially afford to take on based on my financial position?”
You can have substantial equity in your home but not have the income or serviceability to support a large additional loan.
Equally, someone may have a strong income and borrowing capacity but not enough equity to contribute towards the purchase they have in mind.
A lender will assess the overall picture rather than looking at equity in isolation.
For example, APRA's current mortgage serviceability framework requires APRA-regulated lenders to assess new borrowers with a minimum serviceability buffer of 3 percentage points above the loan interest rate, unless APRA determines otherwise.
There are also current limits on the proportion of new residential lending banks can provide to borrowers with a debt-to-income ratio of six times or more.
In other words, having equity doesn't automatically equal borrowing power.
How does using home equity to buy an investment property work?
There are several ways lending can potentially be structured.
One approach may be to increase or restructure lending against your existing home and use the additional funds towards the investment property purchase.
The investment property would then generally have its own loan.
The important consideration is not simply getting access to the maximum amount available. It's understanding how the different loans work together and what the additional debt means for your overall financial position.
This is where loan structure and strategy become important.
At Maison Mortgages, the focus isn't simply on finding a loan. It's on helping you understand your options before you make your next property move.
Can I use equity to buy an investment property without a cash deposit?
Potentially, depending on your available equity, borrowing capacity and the lender's requirements.
If you have sufficient usable equity in your existing property, that equity may be used to contribute towards the deposit and purchasing costs rather than requiring you to have all of those funds sitting in a savings account.
However, this doesn't mean the investment property is effectively “free” or that you don't need to contribute financially.
You're still taking on additional debt, and you'll need to demonstrate that you can service the lending.
This is one reason it is worth understanding your position before you start attending open homes.
What will a lender look at if I want to use equity to invest?
A lender will generally consider your overall financial position, which may include:
Your income
Your salary, business income and other acceptable sources of income help determine your ability to service the proposed lending.
Your existing debts
Your current home loan, credit cards, personal loans, car finance and other commitments can affect how much additional debt you may be able to take on.
Your living expenses
Lenders assess your household expenses as part of their serviceability assessment.
Your existing property
The property's value and your existing loan balance help determine the equity position.
The investment property
The proposed purchase price, loan amount and expected rental income can all form part of the assessment.
Your overall debt position
Taking on an investment property increases your total debt, so the lender needs to assess whether the combined position is sustainable.
This is why a quick online borrowing calculator can only tell you part of the story.
What are the risks of using your home equity to invest?
Using equity can provide an opportunity to invest, but it also increases your overall debt. That's important.
If you use your home as security for additional borrowing and the investment doesn't perform as expected, you still have to meet the loan repayments.
As Moneysmart explains, borrowing to invest can magnify both gains and losses, and some lenders allow borrowers to use their home as security for investment lending. If repayments cannot be maintained, the home may be at risk.
You should also consider:
What happens if interest rates increase?
What happens if the property is vacant?
Can you manage the costs if rental income is lower than expected?
What if the property value falls?
How would another major financial commitment affect your household?
Are you comfortable with the level of debt you're taking on?
The goal isn't necessarily to borrow as much as a lender will allow. It's to understand what level of borrowing makes sense for your circumstances and goals.
What about the tax benefits of buying an investment property?
Tax can be an important consideration when investing in property, but it shouldn't be the starting point for your lending strategy.
The Australian Taxation Office provides specific rules around interest deductions for rental properties. Generally, interest may be deductible where borrowed funds are used to produce rental income, but the treatment depends on how the borrowed funds are used. Where borrowing is partly for private purposes, the interest generally needs to be apportioned.
Your mortgage broker can help you understand the lending structure, but tax advice should come from your accountant or tax adviser.
At Maison Mortgages, the focus is lending strategy and finance — not telling you whether an investment property is the right investment for you.
Should I use equity in my home to buy an investment property?
That's a personal decision and depends on your financial position, goals and appetite for additional debt.
A better starting question is:
“What could my current property and lending position potentially support?”
From there, you can look at the numbers and consider your options.
That might mean:
Buying an investment property now
Waiting and reducing existing debt
Refinancing
Accessing some equity for another purpose
Considering a different investment property price range
Restructuring existing lending
Deciding that investing isn't the right move for you right now
There isn't one strategy that works for every homeowner.
What should I do before looking for an investment property?
Start with your numbers — not the property listings.
Before you spend weekends at open homes, it's worth understanding:
How much is your current property worth?
How much do you still owe?
How much usable equity might you have?
What is your current borrowing capacity?
How much additional debt could you comfortably service?
What purchase price could potentially fit within that position?
What would the repayments look like?
What other costs would you need to allow for?
How would the investment affect your overall financial position?
What loan structure could make sense for your circumstances?
Once you understand these numbers, you can approach the property search with a much clearer idea of what's possible.
That's the Maison approach:
Don't start with the property. Start with the numbers.
Can Maison Mortgages help me work out if I can use my equity to invest?
Yes. That's exactly the type of conversation Maison Mortgages is designed to have. You don't need to have found the investment property yet. In fact, you may be better off having the conversation before you start looking.
Maison can help you understand your current lending and equity position, explore potential borrowing options and work through what your numbers could potentially support.
The aim isn't to tell you what you should do. It's to give you the information you need to make a clearer decision about your next property move.
Frequently asked questions
Can I use the equity in my home to buy an investment property?
Yes, you may be able to use equity in your existing home to help fund the deposit and purchasing costs for an investment property. Your ability to do so will depend on your usable equity, borrowing capacity, income, existing debts, expenses and the lender's assessment criteria.
How much equity can I use to buy an investment property?
It depends on the lender and your circumstances. A common starting calculation is 80% of your home's value less your existing home loan, but the actual amount available may differ following a property valuation and lending assessment.
Does having equity mean I can afford an investment property?
No. Equity and borrowing capacity are different. You may have substantial equity but still be limited by your income, existing debts, living expenses or the lender's serviceability assessment.
Can I use my home equity instead of a cash deposit?
Potentially. Depending on your circumstances and lender requirements, usable equity in your existing property may be used towards the deposit and purchasing costs of an investment property.
Is it risky to use my home as security for an investment property?
There is risk. If your home is used as security for additional borrowing and you cannot meet the repayments, your home may be at risk. Borrowing to invest can also magnify losses if the investment performs poorly.
Should I work out my borrowing capacity before looking for an investment property?
It can be useful. Understanding your borrowing position first can give you a clearer idea of what may be financially achievable before you start looking at properties.
Do I need to have a specific investment property in mind before speaking to a mortgage broker?
No. You can have a conversation about your existing property, equity and borrowing position before you've chosen an investment property. This can help you understand what's potentially possible before you make an offer.
Your next move starts with understanding what's possible
You've built equity in your home. The next question is what, if anything, you want to do with it. If you're considering buying an investment property, refinancing, renovating, upgrading or simply understanding your options, start with your numbers before you make the move.
Wondering what your current property position could potentially support?
Let's work out what's possible. Get in touch today!
Maison Mortgages
Mortgages made personal.
Disclaimer: This article provides general information only and does not constitute personal financial, investment, legal or tax advice. Lending criteria, interest rates and lender policies vary and can change. Your individual circumstances will determine what lending options may be available to you. Consider obtaining appropriate professional advice before making financial or investment decisions.
The information contained within this page is general in nature. It serves as a guide only and does not take into account your personal financial needs. Before you act on this information you should seek independent legal and financial advice.