Everything you need to know about using equity

If you own a home in Deer Park and it has grown in value, you may already have what you need to buy an investment property without starting from scratch.

Equity is the difference between what your home is worth and what you owe on it. When that number has grown large enough, you can use it as security for a second loan without selling or refinancing your existing mortgage. This approach is called leveraging equity, and it allows you to buy another property while your first home remains exactly as it is.

How equity release works when you buy an investment property

You borrow against the equity in your existing home to cover the deposit and costs on a second property. The lender registers a second mortgage over your home, and a separate loan is set up for the investment property secured by that property. You end up with two loans, each secured by a different property, and you continue to repay your original home loan as before.

Consider a borrower who owns a home valued at current market levels in Deer Park, with a remaining mortgage balance of $300,000. If the property is worth $600,000, they hold $300,000 in equity. Most lenders allow you to borrow up to 80 per cent of your property's value without paying Lenders Mortgage Insurance. In this case, 80 per cent of $600,000 is $480,000. The borrower already owes $300,000, so they can access $180,000 in usable equity. That $180,000 can cover a deposit on an investment property, plus stamp duty, legal fees and other settlement costs. The new property is then purchased with a separate investment loan, secured by the investment property itself.

Does releasing equity affect your current home loan?

Your existing home loan repayments do not change when you release equity. The equity release is a separate loan secured by your home, and you repay it on its own terms. Some borrowers set up the equity release loan as interest-only to keep repayments lower, while others repay principal and interest. The structure depends on your cash flow and how you plan to manage both loans.

If you prefer not to take on a separate equity loan, you may be able to refinance your existing home loan to access the equity in a single facility. This approach means you have one loan secured by your home and a second loan secured by the investment property. Either method works, and the decision comes down to whether you want to leave your current mortgage unchanged or consolidate the borrowing.

Serviceability matters more than the equity you have

Having equity available does not automatically mean a lender will approve the loan. Lenders assess your ability to service both your existing mortgage and the new investment loan at the same time. They apply a buffer of at least 3.0 percentage points above the loan product rate and calculate whether your income can cover both repayments, even if interest rates rise.

Rental income from the investment property is included in the assessment, but lenders apply a haircut of at least 20 per cent to account for vacancy periods and maintenance costs. If the property is expected to generate $500 per week in rent, the lender will count $400 per week as income. The remaining shortfall, combined with your existing commitments, must fit within your budget.

Interest-only investment loans reduce initial repayments

Many property investors choose interest-only repayments on their investment loan for the first few years. This keeps the repayments lower and frees up cash flow to cover vacancies, repairs and other holding costs. Interest on the investment loan is generally tax-deductible when the property is rented or genuinely available for rent, so the structure can align with your tax planning.

Interest-only periods typically run for one to five years, after which the loan reverts to principal and interest repayments. Lenders assess your serviceability on the assumption that you will eventually repay both principal and interest over the remaining term, so the approval is based on your ability to manage the higher repayments down the track. You can read more about interest-only investment loans and how they are structured.

Deer Park property values and equity growth

Deer Park sits roughly 20 kilometres west of Melbourne's CBD and has a mix of established homes, newer subdivisions and proximity to schools, parks and the Brimbank Shopping Centre. The area attracts both owner-occupiers and investors due to its transport links, including Deer Park railway station on the regional rail line, and proximity to the Western Freeway.

Property values in the area have risen over recent years, which means many homeowners who purchased in Deer Park five or more years ago now hold significant equity. If you bought at the suburb's median at the time and the value has increased, that growth can be turned into a deposit for a second property without selling your home or dipping into your savings.

Borrowing capacity depends on your full financial picture

Lenders review your income, expenses, existing debts and credit history before approving an equity release or investment loan. Your borrowing capacity is influenced by the rental income from the new property, your salary, any other investment income and your existing commitments. If you have credit card limits, personal loans or car loans, those are included in the assessment even if the balances are low or paid off each month.

Before applying, consider reviewing your debts and closing any accounts you no longer use. A lower debt commitment improves your serviceability and may increase the amount you can borrow. Your broker can model different scenarios and show you how changes to your financial position affect your approval.

Tax treatment for investment property borrowing costs

Interest on loans used to purchase or hold a rental property is generally tax-deductible against the rental income you earn. This includes interest on both the investment property loan and any equity release loan used to fund the deposit, provided the borrowed funds are used for the investment property purchase. Other holding costs such as property management fees, council rates, insurance, repairs and depreciation may also be claimable.

If your rental expenses exceed your rental income in a given year, the loss can generally be offset against your other income, including salary, under the negative gearing rules. For properties acquired after 12 May 2026, changes to the tax treatment of rental losses apply from the 2027-28 income year, but properties purchased before that date continue under the existing rules. Speak to your accountant about how the timing of your purchase affects your tax position.

Taking the next step with equity-based investment lending

If you own a home in Deer Park and you are considering buying an investment property, the first step is to understand how much equity you have and how much of it you can access. Once you know your usable equity and your borrowing capacity, you can start looking at properties that fit within your budget and cash flow.

Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia who offer a range of investment loan options and equity release products, and we can show you how the numbers work before you commit to anything.

Frequently Asked Questions