Use home equity to buy an investment property

Equity is the difference between what your home is worth and what you still owe. Usable equity is smaller: lenders generally let you borrow up to about 80% of the property's value before lenders mortgage insurance applies, so your usable equity is roughly 80% of the value minus your loan balance.

On a home valued at $900,000 with a $400,000 loan: 80% of $900,000 is $720,000, less the $400,000 owing, leaves around $320,000 of usable equity. That figure is indicative only — your lender's valuation, not a listing price, is what counts.

Using equity means you may not need to save a fresh cash deposit. It can also let you keep savings in reserve as a buffer for rates, repairs and vacancies, which is usually a stronger position than emptying the offset account to buy.

It is not free money. Releasing equity increases your total borrowings and your repayments, and it links your home to the performance of the investment. That trade-off is exactly the thing worth talking through with someone before you commit.

• A current valuation of your home, ordered by the lender.
• Serviceability — whether your income covers all repayments at a buffered rate.
• Existing debts, card limits and other commitments.
• Loan structure: a separate split or line of credit is common for the deposit.
• Expected rental income, usually counted at a discounted rate.

Loan structure matters for more than tidiness. How the borrowing is set up can affect what is and isn't deductible, which is a question for your accountant, not a website.

If you'd like to know what your equity, income and super can genuinely support, send a short brief. We generate the lead and match you with one of our independent property specialists who reviews your brief and calls you, usually within one business day. Free, no obligation, and general information only — not financial, credit or tax advice.

Related: buying your first investment property in Australia.