Using equity to buy an investment property

Usable equity, not total equity

If your home is worth $900,000 and you owe $450,000, you have $450,000 in equity. But lenders typically let you borrow up to 80% of the value without mortgage insurance, so the usable amount is $720,000 minus $450,000, which is $270,000. Your income must also support the extra borrowing.

These figures are an illustration only. A lender's valuation may differ from what you expect.

Keep the loans separate

Set up the equity release as a separate loan split used only for the investment. Mixing personal and investment borrowing in one account makes tax records messy and can reduce what you can claim. Speak with your accountant about your situation.

Watch out for cross-securing

Some lenders will want both properties as security for both loans. That can make selling or refinancing one property harder later. Often it's better to keep each property as security for its own loans.

Next, read our investor finance checklist and offset vs redraw.

A worked example of the structure

Say your home is worth $900,000 with a $450,000 loan, and you buy a $700,000 investment property. A clean structure might look like this:

• Loan 1: your existing $450,000 home loan, unchanged.
• Loan 2: a new split secured by your home for the investment's deposit and costs, used only for the investment.
• Loan 3: a loan secured by the investment property for the remaining 80% of its price, ideally with a different lender or at least not cross-secured.

This keeps each property's debt separate and makes the investment's interest easy to identify. The details depend on your situation, so involve your accountant.

Interest-only or principal and interest?

Many investors choose interest-only on investment debt while paying down their home loan faster. Interest-only rates are often higher, and the interest-only period ends, so model the repayments afterwards too.

Don't forget cash flow

Allow for vacancies, repairs, property management fees, strata, insurance, council rates and land tax. Our investment finance checklist covers these in detail, and the repayment calculator helps you test scenarios.