Using Equity in Your Home to Buy an Investment Property
1 May 2026
For many Australian property owners, the equity sitting in their home is the most accessible pathway to a second purchase. But accessing it is not automatic, and lenders assess it more carefully than most borrowers expect.
What Equity Is and How It Builds
Equity is the difference between what your property is worth and what you owe on it. If your home is valued at $900,000 and your outstanding loan balance is $550,000, you have $350,000 in equity. That equity builds over time through a combination of principal repayments reducing the loan balance, and property value growth increasing the asset side of the equation.
Not all of that equity is accessible, however. Lenders will typically allow borrowing against a property up to 80% of its value without requiring lenders mortgage insurance. That 80% figure, sometimes called the loan-to-value ratio (LVR) limit, sets the ceiling on how much can be borrowed against the asset in total. The gap between 80% of the property's value and the outstanding loan balance is what is commonly referred to as usable equity.
How Usable Equity Is Calculated
The calculation is straightforward. Take 80% of your property's current market value, then subtract your existing loan balance. The result is the maximum usable equity a lender will typically allow you to access without LMI applying.
Using the earlier example: 80% of $900,000 is $720,000. Subtract the $550,000 loan balance, and the usable equity is $170,000. That $170,000 is the amount a lender may allow you to access, through a refinance, top-up loan, or line of credit, to use as a deposit on an investment property. The key phrase is "may allow": lenders also assess your ability to service the additional debt, which is a separate test from whether the equity exists.
Example: $900,000 home, $550,000 loan balance
Total equity
$350,000
Property value minus loan
80% LVR limit
$720,000
Maximum borrowing threshold
Usable equity
$170,000
Available for investment deposit
Investment deposit
20%
Required to avoid LMI on new loan
Cross-Collateralisation vs Standalone Loan Structures
There are two main ways lenders structure equity access for investment purchases. The first is cross-collateralisation, where both properties are used as security for both loans, effectively linking them together. The second is a standalone structure, where you access the equity from your home via a separate loan or top-up, use those funds as a cash deposit, and then take out an independent loan on the investment property secured only by that property.
Cross-collateralisation can be simpler to set up but gives the lender more control over both assets. If you want to sell one property or refinance one loan independently, the lender's approval is required over the entire structure. Many brokers prefer standalone structures for investors because they keep the properties financially separated, making future transactions more straightforward, including further refinancing, selling one asset, or accessing equity again. The right structure depends on individual circumstances, and a broker or adviser familiar with investment lending can assess which approach suits your goals. Tax structuring across multiple properties also has implications worth discussing with a qualified accountant before proceeding.
Can I use equity as the full deposit on an investment property?
In some cases, yes, but only if the usable equity in your home is sufficient to cover both the 20% deposit on the investment property and the upfront costs (stamp duty, conveyancing, inspections). The investment loan itself is then secured against the investment property. Lenders will assess both properties and both loan balances against your income. Whether this is achievable depends on your existing loan balance, the value of your home, and the purchase price of the investment property you are targeting.
Serviceability: The Test That Matters as Much as the Equity
Having usable equity is necessary but not sufficient. Lenders will also assess whether your income can support two loans simultaneously: your existing home loan (or the increased top-up balance) plus the new investment loan. This serviceability assessment uses a buffer rate of typically 3% above the actual loan rate to stress-test whether repayments remain manageable if rates rise.
Rental income from the investment property is generally counted in this assessment, but typically at a discount of 20% to 30% to account for vacancy and costs. An investor earning $35,000 per year in rent, for example, might have only $24,500 to $28,000 recognised by the lender for serviceability purposes. The interaction between your income, existing commitments, proposed loan amounts, and the lender's assessment rate determines what is achievable. These figures can vary considerably across lenders, which is one of the reasons having a broker run comparisons across multiple institutions is often more useful than approaching a single bank.
What Lenders Look for Beyond the Numbers
In addition to equity and serviceability, lenders consider the type of property being purchased, its location, and whether it meets their policy requirements. Some lenders apply restrictions on high-density apartments in certain postcodes, properties below a minimum size, or dwellings in specific regional areas. Studio apartments, serviced apartments, and properties with unusual titles can face limited lender options, which affects the rate and terms available.
Your credit history, existing debts, and any other financial commitments are also factored into the assessment. A clean credit file and manageable existing debts improve the range of lenders and products available to you. Conversely, existing personal loans, credit card limits (even if unused), or HECS-HELP debt all reduce borrowing capacity under standard assessment frameworks.
Key Takeaways
- Usable equity is calculated as 80% of your property's current value minus your outstanding loan balance. This is the maximum most lenders will allow you to access without LMI applying.
- Having equity available does not automatically mean a lender will approve its use for an investment purchase. Serviceability is assessed separately and must also be satisfied.
- Rental income from the investment property is typically recognised at a discount of 20–30% for serviceability purposes, not the full gross rental amount.
- Cross-collateralisation links both properties as security, while standalone loan structures keep them separated. Each has different implications for future transactions and flexibility.
- The tax and structuring implications of holding an investment property are specific to individual circumstances and worth discussing with a qualified accountant before committing to a structure.
- Lender policies on investment property vary significantly . Some restrict certain property types or locations, which can affect rate and approval outcomes across different institutions.
Whether you have enough equity to make a move, and how to structure it most effectively, is exactly the kind of question worth working through with a broker before you start making offers. Book a conversation with the JRW Finance team at jrwfinance.com.au/meet, or follow us on TikTok, Instagram, and Facebook.
