Short answer
Often, yes. Equity is your home's value minus what you owe, and lenders usually let you borrow up to 80% of the value without lenders mortgage insurance; some go higher with it. You can use that borrowing towards an investment property's deposit and costs. It also puts your home at risk if the investment goes badly, so check the numbers carefully and get tax advice.
What is usable equity?
Equity is the difference between your home's value and what you owe on it. Lenders usually lend up to 80% of a property's value without lenders mortgage insurance (LMI), which protects the lender, not you. So the equity you can usually borrow against without LMI is about 80% of the value, minus your current loan.
A worked example
This is a hypothetical example with round numbers. It assumes the lender values the home at $1,000,000 and the borrower can afford the extra repayments.
| Amount | |
|---|---|
| Home value (lender's valuation) | $1,000,000 |
| 80% of the value | $800,000 |
| Current home loan | $500,000 |
| Usable equity (before LMI) | $300,000 |
Whether you can borrow that much also depends on your income, expenses and other debts. Our equity calculator gives a quick estimate.
How it's usually set up
- A separate loan split against your home for the deposit and buying costs of the investment property
- A second loan for the rest of the investment purchase, secured by the investment property (and sometimes your home too)
Keeping the investment borrowing in its own loan, separate from your home loan, makes it far easier to track what each part was used for.
Why it matters for tax what the money is used for
The ATO looks at what borrowed money is used for, not what property secures it. Interest on money used to buy a rental property can generally be claimed as a deduction, while interest on money used for private purposes can't. If one loan is used for both, the interest has to be split. A redraw or line-of-credit drawdown counts as a new borrowing, so its purpose matters too. Repayments of the loan principal aren't deductible. A registered tax agent can explain how this applies to you.
The risks to weigh up
- Your home is on the line. Moneysmart warns that if you use your home as security and can't keep up with repayments, you could lose it.
- Gearing cuts both ways. Borrowing to invest increases gains when values rise, and losses when they fall.
- Costs keep coming. Rent may not cover the repayments, council rates, insurance, repairs and periods with no tenant.
- Rates can rise. Higher rates mean higher repayments on both loans.
- It's a long-term commitment. Property can take time and money to sell.
Whether an investment property suits you is an investment decision. For that, talk to a licensed financial adviser. We can help with the loan side: how much you can borrow, how to structure it, and what it will cost.
How MoneyGenie helps
- Works out your usable equity with you, based on a lender's valuation, not just an online estimate.
- Structures the borrowing so your investment and home loans stay separate and easy to track.
- Compares investment loan options on our panel, and is upfront about what you can comfortably afford.
Nabita compares options from MoneyGenie's panel of 35+ lenders, tells you upfront which are realistic for your situation, and handles the application with you through to settlement. Our service is generally at no cost to you, as we're paid a commission by the lender, which we disclose to you upfront. Details are in our Credit Guide, available on request. Talk to Nabita: call 040 110 1608 or send an enquiry.
Call 040 110 1608 Send an enquiryLast reviewed by Nabita, mortgage broker, MoneyGenie Finance.
Official sources
Frequently asked questions
How much equity can I use?
Lenders usually lend up to 80% of your home's value without lenders mortgage insurance, so your usable equity is roughly 80% of the value minus what you owe. Some lenders go higher with LMI. It still has to fit what you can afford to repay.
Is the interest on the equity loan tax deductible?
The ATO looks at what the borrowed money is used for, not what secures it. Interest on money used to buy a rental property can generally be claimed; interest on money used for private purposes can't. Speak to a registered tax agent about your situation.
What are the risks?
Moneysmart warns that borrowing to invest magnifies losses as well as gains, and if you use your home as security you could lose it if you can't keep up with repayments. Rent may not cover all the costs, and property values can fall.
Do I need a valuation?
Yes. The lender values your home to work out how much equity you have. The result can differ from online estimates, so treat those as a guide only.
The rules and figures in this guide were checked against the official sources above on the review date. Government rules and lender policies change, so check your own situation with us or the relevant authority before acting.