Using equity to buy an investment property
Yes, you can use the equity in your home to buy an investment property: a lender lets you borrow against your home to pay the deposit and costs, and lends the rest against the new property. But the equity you can use is usually 80% of your home's value minus what you owe, not the whole difference. Equity pays the deposit; your income still has to support both loans. And how the loans are set up decides whether you can later sell either property on its own.
Your equity and your usable equity are different numbers
Your equity is your home's value minus what you owe. Your usable equity is what a lender will let you borrow against without lenders mortgage insurance: usually 80% of the value, minus what you owe.
On a $900,000 home with $400,000 owing, your equity is $500,000. Your usable equity is 80% of $900,000, which is $720,000, minus $400,000: $320,000. That's the number that decides the purchase, and it's $180,000 smaller than most people expect.
The value is the lender's valuation, not your estimate or a website's. A lower valuation shrinks the usable figure by 80 cents for every dollar.
Work out your usable equity in three lines
Take your home's likely value and multiply it by 0.8.
Subtract everything you owe on it, including any redraw you've used.
The result is your usable equity, before lenders mortgage insurance would apply.
A lender may lend above 80% with mortgage insurance, but that's a cost on top, and it makes the deposit more expensive.
A worked example, start to finish
An illustration, not a client file. A $900,000 home with $400,000 owing. You buy a $650,000 investment property. Stamp duty depends on the state: on a $650,000 property in Western Australia, normal duty is $24,890. Allow about $5,000 more for legal and other costs.
| Step | Amount |
|---|---|
| Usable equity in your home (80% of $900,000, less $400,000) | $320,000 |
| Deposit on the investment (20% of $650,000) | $130,000 |
| Stamp duty and costs | about $30,000 |
| Equity you release from your home | $160,000 |
| New loan against your home ($400,000 + $160,000) | $560,000, 62% of its value |
| Loan against the investment property (80%) | $520,000 |
| Total you owe | $1,080,000 |
At 6.0% over 30 years, principal and interest, the two loans cost about $6,475 a month before rent. A lender will test them at about 9% (section 9), which is about $8,690 a month. That's why the next question isn't equity but income.
Separate loans, or one loan across both properties?
Cross-collateralised. Both properties secure the loans together. It's often what a lender offers first, because it's simple for them. But the lender then holds both titles against all the debt, so selling one, refinancing one, or moving one loan to another lender needs its agreement, and it can revalue both.
Stand-alone. The equity release is a separate loan secured only by your home; the investment loan is secured only by the investment property. Each property stands on its own, so you can sell, refinance or move either one without the other being involved.
Why cross-collateralising is hard to undo
When both properties secure one lender's loans, selling one usually means the lender decides how much of the sale proceeds goes to the debt, and it can ask for more than you expected if the other property's value has fallen. Moving one loan to a better rate means refinancing both. Unpicking it later costs valuations, fees and time, and sometimes isn't possible on the terms you want.
The structure to ask for: the deposit and costs as a separate loan against your home, and the investment loan against the investment property alone, ideally set up so each could sit with a different lender.
Keeping the investment borrowing separate
Keep the equity you release for the investment in its own loan split, used only for the investment's deposit and costs. Mixing it with money for your own spending makes the tax treatment of the interest harder to work out later. Whether the interest is deductible depends on what the money is used for; that's a question for your accountant, and a clean split makes their answer easy.
Equity gets the deposit; income gets the loan
Equity solves the deposit. It doesn't solve the repayments. The lender adds up both loans and tests whether your income, plus part of the expected rent, covers them at a higher rate than you'll pay: APRA expects banks to test at least 3 percentage points above the actual rate. On the example's $1,080,000, that's roughly 9%.
APRA also limits how much each bank can lend to people whose total debts are six or more times their income, counted separately for investors. A household on $160,000 with $1,080,000 of debt is at 6.75 times, so some banks may be more cautious, though others still lend.
How the rent is counted
Lenders count the rent you expect, but usually not all of it, to allow for vacancies, management and costs. They'll want a rental appraisal from an agent for a purchase, or a lease for a property you own. So a property that "pays for itself" on the full rent often doesn't on the lender's numbers.
What happens if values fall
Borrowing against your home means your home secures the investment's deposit. If both properties fall in value, you can owe more against them than they're worth, and you can't easily release more equity or refinance. Leave room: don't use every dollar of usable equity, and keep a buffer you could live on if the property sat empty for a few months.
What to do, in order
Get your home valued, and work out your usable equity from that figure.
Check your borrowing on both loans, at the test rate, before you look at properties.
Set up the structure: a separate equity loan for the deposit and costs, and the investment loan on the new property alone.
Get pre-approval, then buy.
Questions investors ask us about equity
Usually 80% of your home's value minus what you owe. On a $900,000 home with $400,000 owing, that's $320,000.
Thinking of using your equity to buy?
Tell me roughly what your home is worth, what you owe, your income, and what you'd like to buy. I'll work out your usable equity, check the borrowing on both loans, and show you the structure that keeps each property separate.
You'll hear back within the hour in business hours, and by 9am the next business day after hours.
Sources
- 1
APRA, serviceability buffer of at least 3 percentage points (6 October 2021; held, 28 May 2026) and debt-to-income limit from 1 February 2026 (release of 27 November 2025). Re-read 29 September 2026.
- 2
Government of Western Australia, Duties Fact Sheet, Residential Land, general rates (updated 5 March 2026). Read 2 October 2026.
- 3
The worked example: Money Brain's arithmetic on the stated figures and assumptions.
Updated 2 October 2026