If you own your home and have been paying down your mortgage for a few years — or if property values in your area have risen — you may already be sitting on a significant amount of usable equity. That equity can be your ticket to buying an investment property without needing to save a fresh deposit from scratch.
What Is Usable Home Equity?
Equity is the difference between what your home is worth and what you owe on it. But not all equity is “usable” for borrowing purposes. Most lenders will only let you access equity up to 80% of your home’s value (to avoid LMI on the equity release).
Usable equity formula: (Property Value × 80%) − Outstanding Loan Balance = Usable Equity
Example: Your home is worth $900,000 and you owe $450,000. 80% of $900,000 = $720,000. $720,000 − $450,000 = $270,000 in usable equity.
That $270,000 could be used as a deposit — and associated costs — for one or even two investment properties, depending on their value.
How Do You Access Your Equity?
There are two main ways to access home equity for investment purposes:
Refinancing your existing loan — You refinance your home loan to a higher amount, with the additional funds going into an offset account or a separate loan split. This gives you access to the equity as cash to use for the investment property deposit.
Setting up a home equity loan or line of credit — A separate loan facility secured against your home, giving you access to a revolving line of credit up to the approved limit. You draw down what you need when you need it and only pay interest on the amount drawn.
Keeping the Loans Separate: Why It Matters for Tax
It’s critical to set up separate loan accounts for your home and your investment borrowings. The interest on money borrowed to purchase an investment property is tax-deductible. If you mix investment and personal borrowings in the same account, you create a tax nightmare that your accountant will struggle to unravel — and you risk losing deductions you’re entitled to.
The correct structure: Loan 1 (owner-occupied) — existing home loan balance. Loan 2 (investment) — the equity release used for the investment property deposit and costs. Loan 3 (investment) — the actual mortgage on the investment property.
Serviceability: Can You Afford Both Loans?
Just because you have the equity doesn’t mean you have the income to service both loans. Before proceeding, have a broker run a full serviceability assessment. The lender will factor in: your current home loan repayments, the new equity release loan repayments, the investment property loan repayments, your rental income (credited at 80%), and all other financial commitments.
In many cases, the rental income from the investment property will partially offset the additional loan repayments — improving your overall cash flow position.
Property Valuation: The Key to Your Equity Release
The amount of equity you can access depends entirely on what your lender thinks your property is worth. If you believe your home has increased significantly in value since you last had it valued, a broker can often order a desktop or full valuation before you formally apply — allowing you to understand your equity position before committing to anything.
Let Assembly Finance Run the Numbers for You
Accessing equity and buying investment property is one of our specialties. We can assess your current equity position, calculate how much you can access, model whether you can service both loans, and structure the whole arrangement for maximum tax efficiency.
