Many homeowners assume buying an investment property means saving a large cash deposit over many years.
In reality, many Australians already have enough equity in their existing home to take the next step without relying solely on their savings.
If your property has increased in value over time or you’ve been paying down your home loan, you may already have equity that could be used towards the deposit and purchase costs for an investment property.
Understanding how equity works, how lenders assess it and how to structure your lending correctly can help you build wealth sooner while avoiding common mistakes.
Investment Property Series
Understanding how equity can be used to purchase an investment property can help you build wealth sooner and avoid unnecessary delays.
Available guides:
Can I Buy an Investment Property Without Using My Savings?
Can I Use Equity Instead of a Cash Deposit?
How Does Equity Work When Buying an Investment Property?
How Much Equity Do I Need to Buy an Investment Property?
Why Homeowners Use Equity to Invest
For many Australians, their home is their largest financial asset.
As property values increase and home loans are gradually paid down, equity builds naturally over time.
Rather than waiting years to save another deposit, many homeowners choose to use some of this equity to purchase their first investment property.
When structured correctly, this can allow you to enter the property market sooner while preserving your savings as a financial buffer.
What Is Equity?
Equity is the difference between what your property is worth and what you still owe on your home loan.
For example:
- Property value: $900,000
- Home loan balance: $500,000
Your total equity is $400,000.
However, it’s important to understand that total equity and usable equity are not the same thing.
Most lenders will generally allow you to borrow up to 80% of your property’s value without paying Lenders Mortgage Insurance (LMI).
Using the same example:
- Property value: $900,000
- 80% of value: $720,000
- Existing home loan: $500,000
Potential usable equity: $220,000
This usable equity may then be used towards the purchase of an investment property, subject to lender approval and your borrowing capacity.
Want to learn more?
Read our guide: How Much Equity Do I Need to Buy an Investment Property?
Can You Buy an Investment Property Without Using Your Savings?
Potentially.
One of the biggest misconceptions is that you need a large savings balance before investing.
Many homeowners instead use the equity they’ve built in their existing home towards the deposit and purchasing costs.
This allows them to preserve their savings while making use of the value already built into their property.
Whether this is possible depends on your available equity, borrowing capacity and the lender’s policy.
Read more:
Can I Buy an Investment Property Without Using My Savings?
Can Equity Replace a Cash Deposit?
In many situations, yes.
Rather than transferring money from your savings account, equity can often be used towards:
- The investment property deposit
- Stamp duty
- Legal and conveyancing costs
- Loan establishment costs
- Other eligible purchasing expenses
For many investors, this reduces or even eliminates the need to save another substantial cash deposit.
Learn more:
Can I Use Equity Instead of a Cash Deposit?
How Does Equity Actually Work?
Equity isn’t money sitting in your bank account.
Instead, it’s the value you’ve built in your property.
To access that equity, your lender will usually assess your property’s current market value and determine how much usable equity may be available.
Depending on your circumstances, this may involve:
- A property valuation
- Increasing your existing home loan
- Creating a separate loan split
- Refinancing to another lender
The right structure will depend on your goals and future investment plans.
Read our full guide:
How Does Equity Work When Buying an Investment Property?
What Else Do Banks Look At?
Having enough equity doesn’t automatically mean you’ll qualify for another loan.
Lenders also assess your overall financial position, including:
These factors help determine whether you can comfortably afford the additional repayments.
If you’d like to understand how lenders assess these areas, read our Home Loan Assessment Series.
Common Mistakes When Using Equity
Assuming Online Property Estimates Are Accurate
Online property estimates can be useful as a guide, but they aren’t always accurate.
A lender’s valuation may be higher or lower, which can significantly affect how much equity is available.
Using All Available Equity
Just because you can access equity doesn’t always mean you should.
Many investors choose to retain a financial buffer for unexpected expenses or future investment opportunities.
Focusing Only on Interest Rates
A competitive interest rate is important, but loan structure can be equally valuable.
The right loan structure today may make future investment purchases much easier.
Not Thinking Long-Term
Many homeowners focus only on their next purchase.
A well-planned lending strategy can help preserve borrowing capacity and provide greater flexibility as your portfolio grows.
Why Work With a Mortgage Broker?
Using equity involves much more than simply finding a competitive interest rate.
A mortgage broker can help you:
- Calculate your usable equity
- Arrange property valuations
- Compare lender policies
- Structure your lending correctly
- Maximise borrowing capacity where appropriate
- Develop a long-term investment strategy
Getting the structure right today can make purchasing future investment properties much easier.
Frequently Asked Questions
Can I use equity to buy an investment property?
Yes, many homeowners use the equity built up in their existing home to help fund the deposit and purchase costs of an investment property. Whether this is possible depends on your usable equity, borrowing capacity and the lender’s requirements.
Do I need a 20% cash deposit if I’m using equity?
Not necessarily.
If you have sufficient usable equity, it may be possible to use that equity instead of contributing a traditional cash deposit.
Can equity cover stamp duty and purchase costs?
In many cases, yes.
Depending on your available equity and lender policy, equity may be used towards stamp duty, legal fees, loan establishment costs and other eligible purchasing expenses.
Do I need to refinance to access equity?
Not always.
Some lenders allow you to increase your existing loan or create a separate loan split, while others may require refinancing. The most suitable option depends on your circumstances.
Will I need a property valuation?
Usually.
Most lenders will arrange a valuation before approving an equity release to determine your property’s current market value and available equity.
Does using equity increase my home loan?
Yes.
When you access equity, you’re borrowing additional funds secured against your home, which increases your overall loan balance. It’s important to ensure the repayments remain affordable.
Can I use equity if I still have a large mortgage?
Potentially.
The amount of equity available depends on both your property’s value and your outstanding loan balance. Even homeowners with significant mortgages may have usable equity if their property has increased in value.
Is having equity enough to get approved?
No.
Lenders also assess your income, existing debts, living expenses, credit history and overall borrowing capacity before approving additional lending.
Yes, many homeowners use the equity built up in their existing home to help fund the deposit and purchase costs of an investment property. Whether this is possible depends on your usable equity, borrowing capacity and the lender’s requirements.
Not necessarily.
If you have sufficient usable equity, it may be possible to use that equity instead of contributing a traditional cash deposit.
In many cases, yes.
Depending on your available equity and lender policy, equity may be used towards stamp duty, legal fees, loan establishment costs and other eligible purchasing expenses.
Not always.
Some lenders allow you to increase your existing loan or create a separate loan split, while others may require refinancing. The most suitable option depends on your circumstances.
Usually.
Most lenders will arrange a valuation before approving an equity release to determine your property’s current market value and available equity.
Yes.
When you access equity, you’re borrowing additional funds secured against your home, which increases your overall loan balance. It’s important to ensure the repayments remain affordable.
Potentially.
The amount of equity available depends on both your property’s value and your outstanding loan balance. Even homeowners with significant mortgages may have usable equity if their property has increased in value.
No.
Lenders also assess your income, existing debts, living expenses, credit history and overall borrowing capacity before approving additional lending.
The Bottom Line
For many homeowners, the biggest obstacle to buying an investment property isn’t saving another deposit. It’s understanding the equity they already have.
If you’ve owned your home for several years, you may already have enough usable equity to purchase an investment property sooner than you expected.
The key is understanding how equity works, how much is available, whether your borrowing capacity supports another purchase and choosing the right lending structure from the outset.
We Can Help You Make the Right Move
Budget announcements can create uncertainty, especially when housing, lending and property investment are involved.
Whether you are buying your first home, reviewing your current lending or planning your next investment purchase, understanding how these changes may affect your borrowing position is important.
We can help you assess your options and build a strategy that suits your goals and circumstances.
Book a strategy session:
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