Can I use my home equity to buy another property?

Your home equity can absolutely be used to buy another property.

If you own a home with equity built up, you can borrow against that value to fund a deposit on an investment property without needing to save additional cash. This approach, called equity release, is one of the most common ways Australians build property portfolios. The key is understanding how much you can access, what lenders will approve, and how the numbers work when servicing two properties.

How much equity can you actually use?

You can typically access up to 80% of your home's value minus what you owe on it.

Consider a property owner in Brisbane whose home is worth $700,000 with a remaining mortgage of $300,000. At 80% loan to value ratio (LVR), they could borrow up to $560,000 against the property. After repaying the existing $300,000 loan, they would have $260,000 in usable equity. That amount could cover a 20% deposit on a $1.3 million investment property, avoiding Lenders Mortgage Insurance (LMI) entirely. If you're willing to pay LMI, some lenders will allow you to borrow up to 90% or even 95% LVR, releasing more equity but adding to your borrowing costs.

The calculation changes if you already have investment debt or other liabilities. Lenders assess your total borrowing capacity based on all your income and expenses, including the new investment loan repayments and the increased debt on your home.

What lenders assess when you borrow against equity

Lenders look at your income, expenses, and whether you can service both the increased home loan and the new investment loan.

They'll factor in the rental income from the property you're buying, but most lenders only count 70-80% of that income due to vacancy risk and maintenance costs. If the investment property generates $600 per week in rent, they might only count $480 per week when calculating your borrowing capacity. Your existing home loan repayments will increase because you're drawing down more funds, and those repayments are assessed at a buffer rate, usually 3% above the actual interest rate.

In our experience, this is where many Queensland property investors hit a wall. They have enough equity in their home but their income doesn't support the additional borrowing. If you're in a single-income household or carrying other debts like car loans or personal credit, your capacity to leverage equity may be limited regardless of how much equity you've built.

Interest only or principal and interest for the investment loan?

Most property investors choose interest only repayments on investment loans to maximise cash flow and tax deductions.

Interest only means you're only paying the interest portion each month, not reducing the principal. This keeps your repayments lower and increases the amount you can claim as a deduction, since all interest on an investment loan is deductible. For an investor borrowing $520,000 at current variable rates, switching from principal and interest to interest only could reduce monthly repayments by around $1,000, depending on the rate. That difference can be reinvested, used to cover property expenses, or applied to paying down non-deductible debt on your home.

The downside is you're not building equity in the investment property during the interest only period, which is typically one to five years. Once that period ends, the loan reverts to principal and interest unless you refinance or request an extension. Some investors prefer principal and interest from the start to build equity faster and reduce overall interest costs, particularly if they're focused on long-term wealth building rather than immediate cash flow.

How refinancing fits into the strategy

You don't necessarily need to refinance your home loan to access equity, but it's often the most effective option.

Some lenders will let you increase your existing loan amount without switching products, but the rate and features may not suit an investment loan refinance strategy. Refinancing gives you the chance to restructure your debt, split your loan into an owner-occupied portion and an investment portion, and potentially secure better rates or features. Splitting the loan also makes tax time simpler, since the interest on the investment portion is fully deductible while the interest on your home loan is not.

As an example, an investor on the Gold Coast refinanced their $400,000 home loan and drew an additional $150,000 in equity to buy a unit in Southport. They split the loan into two accounts: $400,000 at a variable rate for their home and $150,000 on a separate variable rate loan tagged for the investment. This structure meant they could claim the interest on the $150,000 while keeping their personal loan separate. It also gave them the flexibility to make extra repayments on their home loan without affecting the deductible debt.

Stamp duty and upfront costs you need to plan for

Equity can cover your deposit, but you still need cash or additional borrowing to cover stamp duty and other upfront costs.

In Queensland, stamp duty on a $650,000 investment property would be around $21,000, plus legal fees, building and pest inspections, and potentially body corporate setup fees if you're buying into a complex. Some lenders will allow you to borrow up to 90% LVR and capitalise these costs into the loan, meaning you're not paying them out of pocket but adding them to your total debt. This increases your repayments and can trigger LMI, so it's worth running the numbers before assuming you can borrow your way out of every upfront cost.

Claimable expenses like loan establishment fees, depreciation on fixtures and fittings, and ongoing property management fees can reduce your taxable income, which helps offset the initial outlay. Negative gearing benefits apply when your rental income is less than your expenses, allowing you to claim the shortfall against your other income. Just remember that relying on negative gearing means you're carrying a property at a loss, which requires sufficient income to support the gap.

What happens if your borrowing capacity falls short?

If you can't borrow enough to fund the investment property using equity alone, you have a few options.

You can reduce the purchase price, contribute additional cash savings to lower the loan amount, or bring in a guarantor or co-borrower to increase your capacity. Some investors look at lower-priced regional markets or units rather than houses to bring the total borrowing within reach. Others focus on improving their borrowing position by paying down non-deductible debt, increasing income, or waiting for their home to appreciate further before pulling equity.

Another option is to review your borrowing capacity with a broker who can compare lenders. Different lenders assess rental income, living expenses, and existing debts differently, and switching to a lender with more favourable serviceability policies can make the difference between approval and decline.

Building wealth through property investment takes planning, and using equity is a powerful way to grow your portfolio without tying up years of savings. The key is knowing how much you can access, structuring your loans correctly, and ensuring the numbers work not just on approval day but across the life of both loans. Call one of our team or book an appointment at a time that works for you to talk through your specific situation and access investment loan options from banks and lenders across Australia.

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