Beginner's Guide to Using Home Equity for Investment

If you already own property in Queensland, you might have more buying power than you realise.

Refinancing to release equity means increasing your loan amount against your existing property to access the difference between what you owe and what it's worth. That cash can then fund the deposit and purchase costs for a second property without needing years of additional savings. It's not about taking on debt for the sake of it. It's about putting an asset you already own to work.

What Counts as Usable Equity

Usable equity is the portion of your property value that lenders will allow you to access while keeping your loan to value ratio within their lending criteria. Most lenders cap this at 80% of your property's current value to avoid lenders mortgage insurance, though some will lend higher depending on your circumstances.

Consider someone who bought in Coorparoo five years ago. Their property has increased in value, and they now owe $420,000 on a home worth $750,000. At 80% LVR, they could borrow up to $600,000 against that property, leaving $180,000 in available equity after accounting for their existing loan. After setting aside funds for purchase costs like stamp duty and legals, they'd have enough to cover a 20% deposit on a $700,000 investment property without touching their offset account.

The calculation matters because equity isn't the same as cash in hand. You still need to service the increased loan on your current property, plus the new investment loan for the second one. Lenders assess both commitments together when determining how much you can borrow.

How Refinancing Unlocks That Equity

Refinancing your existing home loan allows you to increase the loan amount and receive the difference as cash at settlement. That's different from a separate equity loan or line of credit, both of which add another layer of interest and repayment structure.

When you refinance to access equity, you're replacing your current loan with a larger one. The new loan pays out the old balance, and the additional amount gets deposited into your account. You can then use those funds as a deposit for your investment property, keeping the loans separate for tax purposes.

In our experience, clients often assume they need to refinance with their current lender. That's rarely the case. Refinancing to a new lender can give you access to better rates, more flexible offset features, or policies that better suit investment lending. A loan health check before you commit helps identify whether your current loan structure still fits your goals or whether moving lenders makes more sense.

Loan to Value Ratio and Borrowing Limits

Your loan to value ratio determines how much equity you can access and whether you'll pay lenders mortgage insurance. LVR is calculated by dividing your total loan amount by the property's value.

Staying at or below 80% LVR means you avoid LMI, which can add thousands to your borrowing costs. Going above that threshold isn't necessarily a problem if the numbers still work, but it does increase the upfront expense and the amount you're financing. Some lenders offer no LMI loans for specific professions or circumstances, which can change the equation if you're borrowing above 80%.

Lenders also assess your borrowing capacity across both properties. That means your income needs to cover the repayments on your refinanced home loan and the new investment loan, plus any other commitments you have. Rental income from the investment property is included in that assessment, though most lenders only count 80% of the expected rent to account for vacancy periods.

If your borrowing capacity is tight, structuring the loans correctly from the start matters. Choosing interest-only repayments on the investment loan can reduce your monthly commitments and improve your serviceability, giving you more room to borrow.

Keeping Your Loans Separate for Tax Purposes

When you're using equity from your home to buy an investment property, the Australian Taxation Office cares about what the borrowed funds are used for, not where they come from.

The portion of your home loan that relates to your original purchase remains non-deductible because it's tied to your primary residence. The additional amount you borrow through refinancing becomes deductible as long as it's used to purchase an income-producing asset. That means you need to keep the two portions separate, either through split loan accounts or clear records showing how the funds were used.

A common structure is to refinance your home loan and set up a split with one portion covering your original balance and another covering the equity release. The second split is then directly linked to the investment property purchase. Your accountant will thank you at tax time if the loans are clearly separated from the beginning, and lenders are familiar with structuring refinances this way.

Mixing the funds or using a redraw facility instead of an offset account can blur the line between deductible and non-deductible debt. Once that happens, it's difficult to untangle later.

Serviceability and Holding Two Properties

Lenders assess your ability to service both loans by looking at your income, existing debts, living expenses, and the rental income from the investment property. They also apply a buffer, testing whether you could still afford the repayments if interest rates increased.

In a scenario where a client earns $120,000 annually and holds a $500,000 loan on their primary residence, adding a $560,000 investment loan changes their serviceability profile significantly. Even with rental income of $650 per week, lenders will only count around $520 of that in their assessment. The client's total monthly repayments rise, and the buffer rates applied by lenders mean they're tested at a rate higher than what they'll actually pay.

This is where loan structure and lender choice matter. Some lenders apply lower buffer rates or assess rental income more favourably. If you're self-employed or have irregular income, the way lenders treat your earnings varies widely. Choosing the right lender upfront, rather than applying with whoever offers the lowest advertised rate, can be the difference between approval and decline.

We regularly see scenarios where a client is declined by one lender and approved by another, not because their financial position changed, but because the serviceability policy differed.

Purchase Costs Beyond the Deposit

Releasing equity covers more than just the deposit. Stamp duty, conveyancing, building and pest inspections, and any immediate repairs or improvements all need to be funded. In Queensland, stamp duty on a $700,000 investment property sits around $27,000, which is a significant portion of the cash you'll need at settlement.

If you're accessing $180,000 in equity and allocating $140,000 to the deposit, that leaves $40,000 for costs. Depending on the property and location, that might be tight. Planning for these expenses before you refinance, rather than discovering a shortfall after you've found a property, keeps the process moving.

Some buyers also factor in a buffer for minor renovations or immediate maintenance, particularly if the investment property is older or needs work to achieve the desired rental return. Including that in your equity calculation upfront means you're not scrambling for additional funds after settlement.

When Refinancing to Access Equity Doesn't Fit

Not every situation suits this approach. If your property hasn't increased in value since you bought it, or if you've recently refinanced and your equity position hasn't changed, you might not have enough available equity to make the numbers work.

Your serviceability might also be stretched if you have other debts, irregular income, or limited rental return from the proposed investment property. Lenders won't approve a loan structure that puts you in a position where repayments become unmanageable, even if the equity is there.

In those cases, consolidating existing debts before refinancing, increasing your income, or waiting until your equity position improves might be more realistic than pushing ahead with a marginal application. A loan health check gives you a clear picture of where you sit and whether refinancing now makes sense or whether waiting six months would put you in a stronger position.

How LBK Lending Structures Refinances for Investment Purchases

We work with clients across Queensland who are using equity to move into investment property. That means understanding your current loan, your equity position, your borrowing capacity, and the tax implications of how the loans are structured.

It also means choosing lenders who assess serviceability in a way that suits your circumstances, whether that's how they treat rental income, overtime, or self-employed earnings. Not all lenders assess the same application the same way, and that's where working with a broker makes a measurable difference.

We also work alongside your accountant where needed to confirm the loan structure aligns with your tax position, particularly if you're holding multiple investment properties or running a business.

Call one of our team or book an appointment at a time that works for you. We'll walk through your equity position, run the numbers on what you can borrow, and structure the refinance in a way that supports the investment purchase without overcomplicating your finances.

Frequently Asked Questions