Top Strategies to Use Your Home Equity for Investment

If you already own a home in Sydenham, you have access to a deposit you might not realise exists.

Your existing property's equity can fund the deposit and costs for an investment property without needing to save tens of thousands of dollars in cash. The process involves borrowing against the value your home has gained, then using that borrowed amount to enter the investment market. You're not selling your home or moving out, you're using what you've already built to open a second door.

How Equity Release Works for Investment Purchases

Equity is the portion of your property you own outright. If your Sydenham home is worth $650,000 and you owe $420,000, your equity sits at $230,000. Lenders will allow you to borrow against up to 80 per cent of your property's value without paying Lenders Mortgage Insurance, meaning you can access around $100,000 from that equity while keeping your total loan at or below $520,000.

That released equity covers your deposit, stamp duty, conveyancing, and building and pest inspections on the investment property. You're not withdrawing cash from a bank account, you're increasing the loan secured against your home and redirecting those funds toward the purchase.

Consider a Sydenham owner who refinanced their existing home loan to release $95,000 in equity. That amount funded a 20 per cent deposit on a unit in a neighbouring growth suburb, plus all associated purchase costs. The owner retained their Sydenham home, continued living in it, and added a second property generating rental income within three months.

Understanding Loan to Value Ratio and Borrowing Limits

Lenders assess how much you can borrow by calculating the loan to value ratio across both your existing home and the investment property you intend to purchase. If you want to keep your LVR at or below 80 per cent to avoid LMI, the combined loan amount across both properties cannot exceed 80 per cent of their combined value.

For instance, releasing $100,000 in equity from your Sydenham home increases your home loan to $520,000. If you then borrow $400,000 to purchase an investment property valued at $500,000, your total borrowing is $920,000 against combined property values of $1,150,000. That gives you an LVR of 80 per cent.

If you're willing to pay LMI, some lenders will allow you to borrow up to 90 or even 95 per cent, but the insurance premium can add thousands of dollars to your upfront costs. Staying at or below 80 per cent keeps your structure cleaner and your costs lower.

Serviceability and the Debt-to-Income Cap

Releasing equity increases your total debt, and lenders must be confident you can service both loans. They assess your income against your existing commitments, then apply a serviceability buffer of 3 percentage points above the current variable rate. That buffer ensures you can still afford repayments if rates rise.

From February this year, lenders also apply a debt-to-income cap. No more than 20 per cent of new investor loans can be written at a DTI of 6 times your gross income or higher. If your household income is $120,000, a total debt above $720,000 falls into that restricted category. Not every lender will approve it, and those that do may apply stricter conditions.

If your income sits just below the threshold, paying down part of your existing home loan or increasing your household income through a pay rise or second income source can bring you back within serviceability limits. A broker can model multiple scenarios before you formally apply, so you know where you stand before committing.

Structuring Your Loans: Split or Separate

When you release equity, you have two main options for structuring your borrowing. You can increase your existing home loan and keep everything under one facility, or you can split your borrowing into separate loans, one for your home and one for the investment property.

Keeping loans separate makes it easier to track which interest is tax-deductible. Interest on borrowings used to acquire or hold an investment property is deductible, but interest on your home loan is not. If you blend both into one loan and redraw funds for personal use, you can muddy the deduction and create headaches at tax time.

Splitting your loans also gives you more control over repayment strategies. You might choose principal and interest repayments on your home loan to reduce non-deductible debt, while selecting interest-only repayments on the investment loan to maximise your cash flow and deductible interest. Many investors in Sydenham use this structure because it keeps the tax treatment transparent and the strategy flexible.

Interest-Only Repayments and Cash Flow

Most investors choose interest-only repayments for the first few years on their investment loan. This keeps the monthly repayment lower, which helps if the rental income doesn't fully cover the loan repayment, council rates, strata fees, and other holding costs.

Interest-only periods typically run for one to five years, after which the loan reverts to principal and interest unless you request an extension. Not all lenders will extend, and those that do may require updated income verification and a property valuation.

If your Sydenham property has strong equity and your investment property is in an area with solid rental demand, the rental income should cover a significant portion of your holding costs. The shortfall, if any, is offset by the tax deduction on your interest and other claimable expenses such as property management fees, insurance, repairs, and depreciation.

What Changed in July This Year

From 1 July 2027, new rules will apply to properties purchased after May last year. Rental losses on most residential investment properties can no longer be offset against your salary or other non-rental income. Those losses are quarantined and can only be used against future rental income or capital gains when you sell.

Properties you already own, or those under contract before that date, are not affected. You can continue to negatively gear those properties under the existing rules. Eligible new builds purchased after that date retain full negative gearing, provided the dwelling was constructed on previously vacant land or the build increased the total number of dwellings on the site.

If you're using equity from your Sydenham home to buy an investment property now, you're grandfathered under the old rules. That means any rental loss can still reduce your taxable income, which improves your after-tax cash flow and can make the investment more affordable in the early years.

Choosing Between Variable and Fixed Rates

Investment loan products are available in both variable and fixed rate formats. Variable rates move with the market, which means your repayment can increase or decrease depending on what the Reserve Bank and your lender decide. Fixed rates lock in your repayment for a set period, typically one to five years, which can help with budgeting and planning.

Fixed rates often come with restrictions. You may not be able to make extra repayments beyond a small annual threshold, and if you need to break the fixed term early due to a sale or refinance, you may be charged break costs. Variable rates tend to offer more flexibility, including offset accounts, redraws, and the ability to make unlimited extra repayments.

Many investors split their investment loan between fixed and variable. Half the loan is fixed for certainty, the other half is variable for flexibility. You can link an offset account to the variable portion, park your rental income in it, and reduce the interest charged on that portion of the loan without losing access to the funds.

Using an Offset Account to Reduce Interest

An offset account is a transaction account linked to your loan. Every dollar in the offset reduces the balance on which interest is calculated. If your investment loan is $400,000 and you have $15,000 sitting in an offset account, you're only charged interest on $385,000.

Rental income flows into the offset, reducing your interest charge each month. You can still access the funds at any time for property expenses, personal spending, or to cover a vacancy period. The interest saving is automatic and doesn't affect the tax-deductibility of your loan, because you're not making extra repayments, you're just offsetting the balance.

Not all lenders offer offset accounts on investment loans, and some charge a higher interest rate or an annual package fee to include one. If the interest saving exceeds the package fee, the offset pays for itself.

What You Need to Apply

Lenders require proof of income, recent payslips or tax returns if you're self-employed, and details of your current home loan and any other debts. They'll also want a valuation of your Sydenham property to confirm the equity available, and a copy of the contract or a property address for the investment property you intend to purchase.

If you're buying an established property, lenders assess the rental income using a vacancy factor and other adjustments. Most lenders will only count 80 per cent of the expected rent when calculating serviceability, to account for periods when the property might sit empty or require maintenance.

If you're buying a new build, some lenders offer more favourable treatment because those properties qualify for depreciation deductions and may attract higher rental demand. They may also waive LMI at higher LVRs or offer discounted interest rates as part of a new build incentive.

How Simple Lending Structures These Loans

We work with Sydenham clients who want to move from one property to two without waiting years to save another deposit. We assess your current equity position, model your serviceability under different borrowing scenarios, and identify which lenders will support your structure at the lowest cost.

We also coordinate the timing. Equity release and investment purchase can happen simultaneously or in stages, depending on whether you've found a property or you're still searching. If you want pre-approval before you start looking, we arrange that. If you've already signed a contract and need finance within 30 days, we manage that too.

Call one of our team or book an appointment at a time that works for you. We'll walk you through the numbers, explain your options, and make sure the structure fits your goals without overcomplicating the process.

Frequently Asked Questions