How to Use Equity to Buy an Investment Property in Australia
You may be able to use equity in your current home as the deposit and purchase-cost funding for an investment property. Equity is the difference between your property’s value and the amount you still owe on your mortgage. Usable equity is the portion a lender may allow you to access.
In many cases, lenders assess usable equity by taking up to 80% of your property’s current value and subtracting your existing loan balance. But having equity does not automatically mean you can borrow it. You must also meet the lender’s income, expense, debt and serviceability requirements.
Brampton Finance helps homeowners across Sydney and Australia assess usable equity, compare lender policies and structure investment lending around their broader property goals.
What is equity in a property?
Total equity is the difference between your property’s market value and your current home-loan balance.
For example, if your home is worth $1,200,000 and you owe $700,000, your total equity is $500,000.
However, total equity is not the same as usable equity. A lender will generally not allow you to access all of that amount.
How do you calculate usable equity?
A common guide is:
Usable equity = 80% of property value − current loan balance
Using the same example:
Current property value: $1,200,000
80% of property value: $960,000
Existing home-loan balance: $700,000
Estimated usable equity: $260,000
This $260,000 may potentially be used toward the deposit and purchasing costs of an investment property, subject to lender approval.
Some borrowers may access more than 80% of a property’s value, but this can involve Lenders Mortgage Insurance, different pricing or stricter lender requirements.
Can I use equity instead of a cash deposit?
Potentially, yes. Equity can be used as the security for funds required for an investment-property deposit and purchase costs.
A common structure is to create a separate loan split against your existing home to fund the deposit and costs, then obtain a separate investment loan secured by the new property.
This can help keep the borrowings for each purpose clear. The correct structure matters, particularly for investors, because mixing private and investment-purpose debt can create unnecessary complexity.
How much equity do I need to buy an investment property?
The amount depends on the investment property’s purchase price, lender policy, stamp duty and other upfront costs.
As a broad illustration, buying a $800,000 investment property with a 20% deposit requires $160,000 for the deposit alone. You would also need to account for stamp duty, conveyancing, inspections and other costs.
If you borrow at a higher loan-to-value ratio, the deposit requirement may be lower, but LMI or different loan conditions may apply.
Your usable equity is only part of the equation. The lender also needs to be satisfied that you can service both your existing loan and the new investment debt.
Can I use equity to buy an investment property with no savings?
Possibly, but it depends on your usable equity, income, liabilities, available lender policy and the purchase costs.
Even when equity funds the deposit, maintaining a cash buffer is important. Investment properties can involve vacancies, repairs, maintenance, strata costs, insurance and rate changes. A lender may also require evidence that you can manage the complete transaction.
The goal should not be to borrow every available dollar. A sensible strategy leaves capacity for unexpected costs and future financial changes.
Does using equity increase my repayments?
Yes. Accessing equity generally means increasing the amount you borrow, which increases your total debt and repayment obligations.
Even if rental income helps support the investment-property loan, lenders usually assess the full position using their own rental-income and serviceability rules. They also apply an assessment rate that may be higher than the advertised rate.
Before accessing equity, test whether your budget can manage both loans if interest rates rise, rental income falls or an unexpected property expense occurs.
Can I use equity to buy a second home?
Yes, usable equity may potentially be used toward a new owner-occupied home, an investment property, renovation or other approved purpose.
The lending structure will depend on whether you are upgrading, keeping your existing property as an investment, selling your current home or purchasing an additional property. Each option has different debt, tax and cash-flow implications.
Do I need a new property valuation to access equity?
Usually, yes. A lender generally requires a valuation to determine its acceptable current value for lending purposes.
The lender’s valuation may differ from a real-estate agent’s estimate or an online property-value tool. This is why it is important not to assume you can access equity until the lender’s valuation and full assessment are complete.
Is it better to refinance or top up my existing home loan?
It depends.
A top-up with your existing lender may be simpler, but refinancing can create an opportunity to compare rates, features, loan structures and lender policy across the market.
The right answer depends on your existing loan, equity position, borrowing capacity, future investment plans and the total cost of each option. A broker can compare the retention option with suitable alternatives.
What are the risks of using equity to invest in property?
Using equity can help build a property portfolio, but it also increases your exposure to debt and property-market movements.
Important risks include:
Higher repayments and interest costs.
Rental vacancies or lower-than-expected rental income.
Repairs, maintenance and strata costs.
A fall in property values.
Reduced borrowing capacity for future plans.
Difficulty meeting repayments if rates rise or income changes.
Investment decisions should be made with a clear understanding of your cash flow, risk tolerance and longer-term objectives. Tax consequences should be discussed with a qualified tax adviser.
How Brampton Finance helps property investors
Brampton Finance helps homeowners and investors understand how much usable equity they may have, what they may be able to borrow and how different lenders assess investment-property applications.
We compare suitable lender options, explain the distinction between equity and serviceability, and help structure lending for a purchase, refinance or portfolio expansion.
Information is general in nature and does not take into account your personal objectives, financial situation or needs. Consider whether it is appropriate for you.
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