Everything You Need to Know About Using Home Equity to Buy Investment Property

Using equity in your current home to fund an investment property purchase is one of the most efficient ways to expand a portfolio without needing additional cash savings.

You can borrow against the equity in your existing property, typically up to 80 per cent of its current value, and use those funds as a deposit on a second property. This approach lets you enter the market sooner and build wealth across multiple assets, but lenders will assess your total borrowing capacity differently than they would for a single home loan.

How Lenders Calculate Available Equity

Usable equity is the difference between what your property is worth now and what you owe, minus the portion lenders require you to keep as a buffer.

Consider a research pharmacist who owns a property valued at $750,000 with a remaining loan balance of $420,000. At 80 per cent loan to value ratio, the lender permits total borrowing of $600,000 against that property. Subtracting the existing $420,000 loan leaves $180,000 in usable equity. That figure can cover a 20 per cent deposit on an investment property, plus some or all of the associated purchase costs such as stamp duty and legal fees, depending on the purchase price and location.

Lenders assess your total exposure across both properties when calculating how much you can borrow. Serviceability is tested on the combined loan amount, not each loan in isolation, and the buffer applied to your investment loan rate will typically be 3 percentage points above the product rate under current APRA settings.

Investment Loan Application and What Gets Assessed

An investment loan application requires evidence of rental income, existing liabilities, living expenses, and your employment income.

Lenders will apply a rental income assessment, typically between 70 and 80 per cent of the expected rent, to account for vacancy periods and maintenance costs. If the property you are buying is expected to generate $550 per week in rent, the lender may use only $385 to $440 of that figure when calculating your capacity to service both loans. Your employment income as a research pharmacist is treated as stable and verifiable, which works in your favour when applying for equity release loans, but lenders will also factor in any other debts, including car loans, personal loans, and credit card limits, even if the balances are zero.

The deposit you are using from equity does not count as genuine savings in the traditional sense, but it does eliminate the need for Lenders Mortgage Insurance if you are borrowing up to 80 per cent against the investment property itself. Going beyond 80 per cent on the new purchase will trigger LMI, which can be capitalised into the loan but increases the total amount borrowed.

Interest Only Repayment Structure for Property Investors

Most investors choose an interest only loan structure for the first few years to maximise deductible expenses and preserve cash flow.

Interest only loans allow you to pay only the interest component of the loan for a set period, usually between one and five years, after which the loan reverts to principal and interest unless renegotiated. This structure reduces monthly repayments and increases the proportion of your costs that can be offset against rental income for tax purposes. The trade-off is that you are not reducing the principal balance during the interest only period, so total interest paid over the life of the loan will be higher unless you make voluntary principal reductions later.

From a cash flow perspective, this structure can make the difference between an investment property being cash flow neutral or requiring regular top-ups from your salary. Lenders still assess your ability to service the loan on a principal and interest basis at the buffer rate, so approval is not easier, but the repayment flexibility can suit investors building a portfolio across multiple properties.

Changes to Negative Gearing from 1 July 2027

Net rental losses on residential investment properties acquired on or after 7:30pm AEST on 12 May 2026 will be quarantined from 1 July 2027 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.

Under the new rules, if your investment property generates a net rental loss after accounting for interest, property management fees, repairs, and other claimable expenses, that loss can only be offset against other residential rental income or carried forward to offset future residential rental income or capital gains. You cannot offset it against your salary as a research pharmacist. Properties you already own, or those under contract before 7:30pm AEST on 12 May 2026, are grandfathered and can continue to be negatively geared under the existing rules until sold.

There is an exception for eligible new builds, which retain full negative gearing. A new build must be constructed on previously vacant land or replace an existing dwelling in a way that increases the total number of dwellings on the site. Knock-down rebuilds that do not add to the dwelling count do not qualify, and if the new build is occupied for more than 12 months before you purchase it as an investor, you lose access to the exemption.

The change does not prevent you from using equity to buy an investment property, but it does shift the financial case toward properties that generate rental income closer to or above the holding costs, or toward new construction.

Fixed Rate or Variable Rate for an Investment Loan

Most investors choose a variable rate or a partial fixed rate split to retain flexibility and access features such as offset accounts and redraw.

Variable rate investment loans typically offer rate discounts, offset account access, and the ability to make extra repayments without penalty. Fixed rate options lock in a rate for a set term, usually between one and five years, which can provide certainty around repayment costs but usually come with restrictions on extra repayments and no offset account. If you fix and need to break the loan early, break costs can apply depending on how rates have moved since you locked in.

A split loan structure, where part of the balance is fixed and part remains variable, lets you manage rate risk while keeping some flexibility. The proportion you fix will depend on your cash flow needs, your view on rate movements, and whether you expect to refinance or sell within the fixed period. Refinancing an investment loan is common once equity builds further or if another lender offers a lower rate or improved loan features.

Serviceability Under the Debt-to-Income Cap

APRA introduced a debt-to-income cap on 1 February 2026, limiting the proportion of new investor lending that can exceed six times gross income.

Lenders can fund up to 20 per cent of their new investor loan volume at a DTI of six times or greater, meaning most new loans are assessed more conservatively. If your total household income is $160,000 and you are applying to borrow $1,200,000 across both your owner-occupied and investment loans, you are at a DTI of 7.5, which may require additional scrutiny or a larger deposit to bring the ratio below six.

The cap applies at the portfolio level across each lender, so while you may still be approved, your application will be subject to closer assessment if your total borrowing pushes into that higher DTI band. This is relevant when using equity because the size of your existing loan and the new investment loan together determine your total exposure.

Structuring Loans to Maximise Tax Deductions

Keeping your investment loan separate from your owner-occupied loan is important for tax purposes.

Interest on borrowings used to acquire or hold a rental property is deductible, but only to the extent the funds are used for that purpose. If you refinance both properties into a single loan or use equity for non-investment purposes, you dilute the deductibility and create ongoing record-keeping complexity. Lenders can split your loans at the time of drawdown so that the investment portion remains separate and all interest on that loan is deductible.

If you are planning to use debt recycling strategies in future, clean loan separation from the outset will save time and compliance issues later. Your accountant or tax adviser can confirm how the loan structure interacts with your broader strategy, but the principle is to ensure every dollar of interest you claim relates directly to the investment asset.

How Property Type and Location Affect Borrowing

Lenders apply different serviceability buffers and LVR limits depending on the type and location of the investment property.

Apartments in buildings with more than 50 dwellings, regional properties, and properties in postcodes flagged for oversupply may attract lower maximum LVRs, sometimes capped at 70 or 75 per cent instead of 80. This reduces the amount you can borrow against the investment property itself and may require you to use more equity from your existing home to cover the shortfall. Units in complexes without completed defect rectification, or buildings with known cladding or structural issues, may be declined altogether or require a significant discount to valuation.

Location also affects rental income assessment. Properties in areas with high vacancy rates or limited rental demand may be assessed at the lower end of the rental income range, reducing your borrowing capacity. Before committing to a purchase, confirm with your broker that the property type and location will not restrict your loan amount or trigger additional lender conditions.

Call one of our team or book an appointment at a time that works for you. We work with research pharmacists who are buying their first investment property or expanding their property portfolio, and we can structure your loans to support both your current purchase and future growth.

Frequently Asked Questions