Your home may already hold the deposit for your next property. If you own in Georgetown and have paid down your loan, you might be able to borrow against that equity instead of saving a cash deposit from scratch.
That is not the same as free money. You are taking on more debt, secured against the roof over your head. This article covers how to do it with your eyes open.
How Does Home Equity Work When Buying an Investment Property?
Equity is the gap between what your home is worth and what you still owe on it. A lender may let you borrow against part of that gap to fund a deposit and costs on an investment property, depending on its own credit policy.
The trade-off is plain. Your home becomes security for the extra borrowing, so a problem with the investment can put your home under pressure too. If a lender approves the extra loan, you still need to cover repayments even if the rental sits empty for a while.
Equity Release and LVR: Where the 80 Per Cent Line Sits
The loan to value ratio (LVR) compares your total borrowing with the property value. Lenders generally ask for Lenders Mortgage Insurance (LMI) once the LVR goes above 80 per cent, but 80 per cent is not a legal borrowing limit.
Borrowing above that line needs approval from both the lender and the LMI insurer, and each lender sets its own caps. LMI is paid by you, so it adds to your costs. Money sitting in an offset account does not reduce the loan amount when LVR is calculated, so do not count on it to bring you under the line.
If your current loan is on an uncompetitive deal, a refinance at the same time as releasing equity can be worth a look. Refinancing can involve discharge, valuation and other fees that vary by lender.
Is the Interest on an Equity Loan Tax Deductible?
The interest is deductible only for the part of the borrowing used to earn rental income. What the money is used for decides it, not the home that secures the loan.
As an example, consider a Georgetown homeowner who releases equity for two purposes: the deposit and costs on a rental property, and a kitchen renovation at home. Their broker sets these up as two separate loan splits. Using the illustrative rate of 6.75% p.a., every $100,000 borrowed for the rental costs about $6,750 in interest a year. That interest relates to the rental, so it is generally deductible. The kitchen split is private spending, so its interest is not deductible.
The outcome is clean records. At tax time, the accountant can see which interest belongs to the investment without untangling one mixed balance. Mixing private and investment spending in one account can reduce the deductible portion, and redrawing from a loan for personal use can do the same. Speak with your accountant about your own situation, as a deduction is never guaranteed.
Ready to get started?
Book a chat with a Mortgage Broker at Mortgage By Design today.
Will You Be Able to Borrow Enough? How Lenders Assess Serviceability
Banks, credit unions and building societies must test whether you can afford the loan at a rate at least 3.0 percentage points above the loan's actual rate. At the illustrative 6.75% p.a., that means being assessed at 9.75% p.a.
This rule applies to authorised deposit-taking institutions (ADIs) only, not to non-bank lenders. APRA's guidance (APG 223) says ADIs should prudently count no more than 80 per cent of expected rent, to allow for periods of non-occupancy. Other lenders set their own rental income policies.
Your existing debts, including credit card limits, also count against you. Our borrowing capacity page is a good place to start, and our investment loans team can run the numbers on your actual situation.
Interest Only or Principal and Interest on the Investment Loan
Interest only means lower repayments for a set period, while principal and interest pays down the balance from day one. APRA expects ADIs to assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so interest only does not increase your borrowing capacity with an ADI. Non-bank lenders set their own policies.
Using the illustrative 6.75% p.a., every $100,000 borrowed costs about $6,750 a year in interest, or roughly $562 a month, on interest only. On principal and interest over 30 years at the same rate, it is roughly $649 a month. Use a repayment calculator for your own figures.
The trade-off is that interest only leaves the balance untouched. When the period ends, repayments rise because the same debt is repaid over fewer years. For tax, only the interest part of a repayment is deductible under either option. Ask your accountant which suits your position.
Negative Gearing Rules Have Changed for New Purchases
Negative gearing rules depend on when you buy and what you buy. Losses on residential investment properties held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, and eligible new builds acquired after that date can also keep this treatment.
For established residential properties bought after that time, the rule changes from the 2027-28 income year. Net rental losses can then only be used against other residential property income, including capital gains on residential property, and unused losses carry forward. Properties bought between that time and 30 June 2027 can use the current rules until 30 June 2027 only.
If you are borrowing to buy, the rental needs to stand up without relying on a tax refund to fill the gap. The change does not affect whether interest is deductible, only how a net rental loss can be used. Get advice from your accountant before you sign a contract.
Getting the Structure Right Before You Apply
Before applying, it helps to know how your current loan is performing. A loan health check shows what equity you have and whether your existing loan suits a second property. For more on our local service, see our page for a mortgage broker in Georgetown.
We look at the loan splits, the lender options across Australia and the repayment pressure if rates move. Call one of our team or book an appointment at a time that works for you, and we will work out whether your equity can do the job.
Frequently Asked Questions
Can I use my home equity to buy an investment property?
Often yes, if a lender approves it. Each lender sets its own limits on how much equity you can access, and your home becomes security for the extra borrowing.
Is the interest on equity borrowed for an investment property tax deductible?
It is deductible only for the part of the borrowing used to earn rental income. Interest on money used for private purposes is not deductible, so confirm your position with your accountant.
Does interest only increase how much I can borrow?
Not with an ADI. APRA expects ADIs to assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so it does not lift your borrowing capacity. Non-bank lenders set their own policies.
When is LMI required on an equity release?
LMI is generally required when total borrowing goes above 80 per cent LVR. Both the lender and the insurer must approve, and the premium is paid by you.
