Equity in your home can fund the deposit on an investment property, but the loan against it only works if the numbers hold up on a lender's serviceability test. This article explains how that process works for consultant pharmacists who earn from accreditation reviews, medication reviews and contract work.
What Is Home Equity and How Does It Help You Buy Another Property?
Home equity is the difference between your home's value and what you owe on it. You can borrow against that difference, usually through an equity release, and use the money as the deposit and costs for an investment property.
Lenders generally want total borrowing to sit at or below 80 per cent of the property's value if you want to avoid Lenders Mortgage Insurance (LMI). That 80 per cent loan to value ratio (LVR) is the point above which LMI is generally required. It is lender policy, not a legal maximum. Each lender sets its own caps, and borrowing above 80 per cent needs approval from both the lender and the LMI insurer.
The main trade-off is that you are now borrowing against your home to buy a second asset. If the investment property falls in value or sits vacant, your home is still security for the debt. You can read more about how this works on our equity release loans for pharmacists page.
How Do Lenders Assess an Investment Loan Application?
Lenders test whether you can afford the repayments at a rate well above the actual rate. APRA requires banks and other authorised deposit-taking institutions to assess new borrowers at least 3.0 percentage points above the loan rate.
Lenders will also take your existing home loan and other debts into account, including the current rate, balance and remaining term, and each lender sets its own approach. Non-bank lenders are not subject to that same APRA buffer, though they set their own policies. Your investment loan application will also look at your income and credit card limits.
For consultant pharmacists, income evidence matters. If you work as a contractor or run your own consulting business, a lender may ask for tax returns rather than payslips. Our self employed loans for pharmacists page covers what is usually involved. To get a sense of your starting point, see our guide to borrowing capacity.
Does Rental Income Count Towards Your Borrowing?
Yes, lenders usually count rental income, but not all of it. APRA's guidance says prudent policies count no more than 80 per cent of expected rent, to allow for periods when the property is empty.
That 20 per cent haircut covers vacancy only. It does not cover agent fees, repairs or other holding costs, so you need to budget for those separately. Lenders also tend to place less weight on a rental appraisal for a property you are about to buy than on actual rent already being received. How each lender treats this varies, so it is worth checking before you apply.
How Much Can You Release and What Does It Look Like in Practice?
The amount you can release depends on your home's value, your current loan balance, the lender's LVR cap and your serviceability. Here is an illustrative example using a rate of 6.75% p.a.
Consider a consultant pharmacist who wants to release $100,000 from their home for an investment property deposit and costs. The extra $100,000 is set up as a separate loan split, so it can be tracked on its own. At an illustrative rate of 6.75% p.a., interest only on that $100,000 is about $6,750 a year, or around $562 a month. On principal and interest over 30 years at the same rate, the repayment is about $649 a month.
That is only the equity portion. The investment loan itself carries its own repayments, and the lender tests both at the higher buffer rate. In this scenario, the pharmacist's broker runs the numbers across several lenders before applying. The outcome is a clear picture of how much can be released while keeping total borrowing within a lender's policy, so the pharmacist can set a purchase budget before attending any inspections. Use a calculator to test your own figures, as these amounts are illustrative only.
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Interest Only or Principal and Interest on an Investment Loan?
Interest only means you pay just the interest for a set period, so your loan balance does not fall. Principal and interest repayments cost more each month but reduce the debt over time.
Interest only does not increase how much you can borrow. Lenders assess it over the shorter remaining term. A 30-year loan with a 5-year interest-only period is tested as if principal and interest must be repaid over the remaining 25 years. When the interest-only period ends, repayments rise because you repay the same balance over fewer years. You can find more on our interest only loans for pharmacists page.
Is the Interest on Equity Borrowings Tax Deductible?
Interest is deductible only when the borrowed money is used to buy or hold a rental property. The security you offer does not decide it. Borrowing against your home to buy an investment property can therefore produce deductible interest, but the same loan used for a holiday or a car would not.
This is why keeping the equity release in its own loan split matters. Mixing personal spending into the same split can reduce the deductible portion, and the ATO treats a redraw as a new borrowing based on how you use it. Only the interest part of a principal and interest repayment is deductible. The principal part is not.
Tax rules on negatively geared properties have also changed. Losses on established residential properties bought after 7:30pm AEST on 12 May 2026 will, from the 2027-28 income year, only be deductible against other residential property income. Properties held at that time, and eligible new builds, keep the current treatment. Speak with your accountant before you buy, as the right structure depends on your own tax position.
Can Debt Recycling Work Alongside Equity Release?
Debt recycling is a strategy that gradually converts non-deductible home loan debt into deductible investment debt. It can sit alongside an equity release, but it adds complexity and the investment itself carries risk. Our debt recycling page explains how it is set up, and your accountant should confirm how it applies to you.
What Should You Weigh Up Before You Release Equity?
The main costs are higher total debt, possible LMI if borrowing exceeds 80 per cent, and the risk that rent does not cover your costs. Your home is also exposed if you cannot meet repayments.
If you are planning a first purchase, read our guide to buying your first investment property. If you already own one, see expanding your property portfolio.
Call one of our team or book an appointment at a time that works for you, and we will work through your equity and borrowing options with you.
Frequently Asked Questions
Can I use my home equity as a deposit for an investment property?
Yes, many lenders allow you to release equity from your home and use it as a deposit and for costs. The amount depends on your home's value, your current loan and the lender's LVR policy.
Do lenders count all of the rental income?
No. APRA's guidance says prudent lenders count no more than 80 per cent of expected rent, to allow for vacancy. Costs such as agent fees and repairs are not covered by that allowance.
Is interest on an equity release loan tax deductible?
It is deductible only to the extent the borrowed funds are used to buy or hold a rental property. Speak with your accountant about your own situation.
Does interest only let me borrow more?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so it does not increase borrowing capacity.
