Top tips to use home equity for investment property

If you own property in Kingston and have been paying down your mortgage, you probably have usable equity sitting in that property right now.

Equity is the difference between what your property is worth and what you owe on it. If your home is valued at $800,000 and you owe $400,000, you have $400,000 in equity. Lenders will typically let you borrow against up to 80% of your property's value, sometimes more if you're willing to pay Lenders Mortgage Insurance. That means you could access a portion of that equity to fund a deposit on an investment property without needing to save another lump sum from scratch.

How lenders calculate usable equity

Lenders don't let you borrow the full amount of equity you have on paper. They calculate usable equity based on your loan to value ratio. Most lenders will allow you to borrow up to 80% of your property's current value, minus what you still owe.

Consider a Kingston homeowner with a property valued at $850,000 and an outstanding mortgage of $450,000. At 80% LVR, the lender would allow total borrowing of $680,000. Subtract the existing $450,000 loan, and the owner could access $230,000 in usable equity. That's enough to cover a 20% deposit on a second property, plus stamp duty and other upfront costs, without needing to sell or dip into savings.

If you want to borrow above 80%, you'll pay LMI, which gets added to your loan amount. That can still make sense if the property you're buying has strong growth potential or rental yield, but it adds to your upfront costs. A broker can run scenarios to show you what borrowing at different LVRs looks like in dollar terms, including how LMI affects your repayments.

Refinancing to release equity

To access equity, most borrowers refinance their existing home loan. This means replacing your current loan with a larger one that covers both the original debt and the additional amount you want to release.

You can refinance with your current lender or switch to a new one. Switching can sometimes get you a lower interest rate or access to lenders with more flexible investment loan features, like higher borrowing limits or offset accounts that work across multiple properties. The refinance process involves a property valuation, a credit check, and an assessment of your income and expenses. Lenders will also factor in the rental income you expect to earn from the investment property, though most only count 80% of it to allow for vacancy periods and maintenance costs.

Interest only versus principal and interest for investment loans

Most property investors choose interest only repayments on their investment loan, at least for the first few years. This keeps monthly repayments lower, which can help with cash flow if the rental income doesn't quite cover the mortgage and other property costs.

If you borrow $400,000 on an interest only basis, you're only paying the interest portion each month. Your loan balance stays at $400,000 for the interest only period, which is typically between one and five years. After that, the loan reverts to principal and interest unless you apply to extend the interest only term. The advantage is that you free up cash to put towards your own home loan or to build a buffer for unexpected costs on the investment property. The downside is that you're not reducing the debt on the investment property during that period, so your equity in that property isn't growing unless the property itself increases in value.

Principal and interest repayments are higher each month, but you're paying down the loan balance from day one. Some investors prefer this approach if they want to build equity faster or if they're planning to hold the property long term and eventually own it outright. Your tax position also matters. Under current rules for properties purchased before May 2026, all loan interest is tax deductible, so interest only loans maximise your claimable interest. For properties bought after that date, the recent budget changes mean negative gearing is quarantined, so the tax benefit is more limited unless you have other rental income to offset.

How the recent budget changes affect new investment purchases

If you bought an established investment property in Kingston or anywhere else before 12 May 2026, the old rules still apply. You can claim rental losses against your wage income, and you'll get the 50% capital gains tax discount when you eventually sell.

For established properties purchased from 13 May 2026 onwards, negative gearing losses can only be offset against other residential property income or capital gains, not your salary. Those losses can be carried forward, so they're not lost, but they won't reduce your tax bill in the same way unless you have other rental income. The 50% CGT discount is also being replaced with an inflation-indexed model and a minimum 30% tax on gains from 1 July 2027. However, if you buy a new build, you can still choose the 50% discount or the new arrangement, whichever works out in your favour.

This doesn't mean using equity to buy an investment property is no longer worthwhile. It does mean the tax benefits are different depending on what and when you buy. New builds and properties that generate positive cash flow from the start are now more attractive than negatively geared established properties for some investors. If you're considering using equity from your Kingston home to fund an investment purchase, it's worth modelling both scenarios with a broker and speaking to an accountant about your specific tax situation.

Borrowing capacity when you already have a mortgage

When you apply for an investment loan, lenders assess your borrowing capacity based on your income, existing debts, and living expenses. If you're refinancing to access equity, your total borrowing increases, so the lender needs to be satisfied you can service both loans.

Lenders will include your current mortgage repayments, any credit card limits, personal loans, and an estimate of your living costs. They'll also include the new investment loan repayments, assessed at a higher interest rate than you'll actually pay. This is called a buffer, and it's typically around 3%, so even if your investment loan has a variable rate of 6%, the lender might assess your ability to repay at 9%.

Rental income helps, but lenders usually only count 80% of it. If the property you're buying is expected to generate $600 per week in rent, the lender will only include $480 per week in their assessment. If you're borrowing close to your limit, this can affect how much you're approved for. Paying down credit cards, consolidating debts, or even refinancing your home loan to a lower rate before applying for the investment loan can improve your borrowing capacity and give you more options.

Using a broker to compare investment loan options

Not all lenders treat equity release and investment loans the same way. Some cap how much equity you can access without LMI. Others have stricter servicing rules or won't lend on certain property types, like apartments with high vacancy rates or units in buildings with known defects.

A broker can show you which lenders will accept your situation and what rates and features are available. They also handle the paperwork, liaise with valuers, and manage the settlement process so both your refinance and your investment purchase happen in the right sequence. If you're buying in Kingston and already own property in the area, a broker familiar with the Canberra market will know which lenders are comfortable with ACT properties and can move quickly when you find the right investment.

You don't pay the broker directly. They're paid by the lender once your loan settles, so there's no upfront cost to get tailored advice. If you're weighing up whether to use equity now or wait, or whether an interest only or principal and interest loan makes more sense for your circumstances, a conversation with a broker can give you clarity before you commit.

Call one of our team or book an appointment at a time that works for you.

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