Can You Use Home Equity to Buy Another Property?
You can use equity in your existing home as a deposit to purchase an investment property without needing to save a separate cash deposit. Lenders allow you to borrow against the value of your current property, typically up to 80% of its value, and use that borrowed amount to fund the deposit and purchase costs for a second property.
Consider a Dubbo homeowner whose property in East Dubbo has risen in value since they purchased. Their home is now valued at $550,000, with $280,000 remaining on their mortgage. That leaves $270,000 in equity. Rather than needing to save another deposit from scratch, they can access a portion of that equity to purchase a rental property in South Dubbo or Wellington without selling their current home. The lender assesses both properties as security, and the existing home effectively guarantees the deposit for the investment.
How Equity Release Works for Investment Property
Equity is the difference between what your property is worth and what you owe on it. To access equity, lenders typically allow you to borrow up to 80% of your home's value without paying Lenders Mortgage Insurance. If your property is valued at $550,000, 80% is $440,000. Subtract your remaining loan of $280,000, and you have $160,000 in usable equity.
That $160,000 can cover the deposit, stamp duty, and purchase costs for an investment property. The lender increases your loan on the existing home or creates a separate loan secured by both properties. You are not selling or cashing out equity in a literal sense. You are borrowing more, using your home as collateral.
This approach is common across regional NSW, where property values have grown steadily and homeowners in Dubbo and surrounding towns have built substantial equity over the past decade. If you purchased in South Dubbo or near the Macquarie River precinct years ago, your equity position may be stronger than you think.
What Lenders Assess When You Borrow Against Equity
Lenders assess your income, existing debts, and the combined loan-to-value ratio across both properties. Your borrowing capacity depends on your ability to service both your existing home loan and the new investment loan, including anticipated rental income from the investment property.
Most lenders include a rental income assessment that discounts the expected rent by around 20% to account for vacancies and maintenance. If you are buying a property in Dubbo's West End or near Delroy Park, the lender will ask for a rental appraisal and calculate serviceability based on around 80% of that figure.
Your existing home loan repayments, any personal debts, and your household income all factor into the calculation. If your income can support both loans comfortably, and the combined borrowing does not push your loan-to-value ratio above 80%, most lenders will approve the structure without requiring additional cash savings.
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Investment Loan Features That Support Equity Borrowing
Many investment loan products include features designed for property investors using equity. Interest-only repayment options allow you to pay only the interest portion of the loan for a set period, typically five years, which reduces your monthly repayments and may improve cash flow while the property generates rental income.
A variable interest rate gives you flexibility to make extra repayments or redraw funds if needed, while a fixed interest rate locks in your repayment amount for a set term. Some investors split their loan between fixed and variable to balance certainty with flexibility.
Offset accounts linked to your investment loan can reduce the interest you pay without affecting your ability to claim interest as a tax deduction. If you hold surplus cash or rental income in the offset, it reduces the balance on which interest is calculated, which can lower your repayments over time.
Tax Implications and Deductible Expenses
Interest on an investment loan is generally tax-deductible when the property is rented or genuinely available for rent. Other claimable expenses include property management fees, council rates, insurance, maintenance, and depreciation on the building and fixtures.
Negative gearing occurs when your rental income is less than your property expenses, and you can offset that loss against other income to reduce your taxable income. Under recent changes announced in the Federal Budget, properties purchased after 12 May 2026 will be subject to new negative gearing rules from 1 July 2027, meaning losses on established properties can only be offset against rental income or capital gains from residential property, not against salary or wages.
If you are considering using equity to buy an investment property in Dubbo or the Central West, the timing of your purchase and whether you buy an established home or a new build will affect which tax arrangements apply. New builds retain access to the existing 50% capital gains tax discount and full negative gearing deductions, which may influence your property selection.
How Much Equity Do You Actually Have?
Your usable equity depends on your property's current market value, not what you paid for it. If you purchased a home in Dubbo ten years ago, its value may have increased significantly, particularly in areas like East Dubbo, South Dubbo, and around the CBD.
To calculate usable equity, take 80% of your property's current value and subtract your remaining mortgage balance. If your home is valued at $500,000 and you owe $250,000, 80% of $500,000 is $400,000. Subtract $250,000, and you have $150,000 in usable equity. That figure can fund a deposit and purchase costs on an investment property without touching your savings.
Lenders require a formal valuation before approving an equity release, so your estimate based on recent sales in your street or suburb may differ slightly from the valuer's figure. In Dubbo, valuations are generally consistent with recent sales data, but rural or larger acreage properties can vary depending on the valuer's comparable sales selection.
Structuring Your Loans for Clarity and Tax Efficiency
When you use equity to buy an investment property, keeping your home loan and investment loan separate makes tax time easier. Interest on your home loan is not tax-deductible, but interest on your investment loan is. Mixing the two can create complications when claiming deductions.
Most brokers recommend splitting your loans so the amount borrowed for the investment property sits in its own loan account. If you refinance or make extra repayments later, the separation ensures your deductible and non-deductible debt remain clearly defined.
This structure also allows you to choose different loan features for each property. You might keep your home loan on a principal-and-interest structure with an offset account, while setting the investment loan to interest-only with a variable rate. That flexibility lets you manage cash flow and tax outcomes independently across both properties.
Lenders Mortgage Insurance and the 80% Rule
Borrowing up to 80% of your property's value typically avoids Lenders Mortgage Insurance, which is a one-off premium charged when your loan-to-value ratio exceeds 80%. If you borrow above that threshold, LMI can add thousands of dollars to your upfront costs.
Some investors choose to exceed 80% to access more equity and avoid using cash savings, but the LMI premium must be weighed against the benefit. In regional areas like Dubbo, where property values are lower than capital cities, LMI on a smaller loan amount may still represent a significant cost relative to the deposit saved.
If your equity position sits just below the 80% threshold, waiting a few months for property values to rise or paying down your mortgage slightly can bring you within the limit and eliminate the need for LMI. Alternatively, some lenders offer LMI waivers for certain professions or loan amounts, which can be worth exploring with your broker.
Should You Consider Refinancing to Access Equity?
If your current home loan has a higher interest rate or limited features, refinancing can give you access to your equity while also reducing your ongoing repayments. Refinancing involves switching your loan to a different lender, often with improved terms, and can be structured to release equity at the same time.
Refinancing also resets your loan features, so you can add an offset account, change your repayment type, or adjust your loan term. For Dubbo homeowners who have been with the same lender for years, refinancing can unlock both lower rates and usable equity in a single transaction.
Your broker can compare investment loan options from lenders across Australia to find a structure that supports your equity release and provides the features you need for long-term portfolio growth. Some lenders offer rate discounts for investors with multiple properties, which can reduce your interest costs as your portfolio expands.
Frequently Asked Questions
How much equity do I need to buy an investment property?
You need enough equity to cover the deposit, stamp duty, and purchase costs on the investment property. Most lenders allow you to borrow up to 80% of your current property's value, so your usable equity is the difference between 80% of its value and what you owe.
Can I use equity without selling my home?
Yes, you can access equity by increasing your loan amount or creating a separate loan secured by your existing property. You do not need to sell or move out, and your home remains your security.
Will I pay Lenders Mortgage Insurance if I use equity?
If your combined loan-to-value ratio stays at or below 80%, you typically avoid Lenders Mortgage Insurance. Borrowing above 80% may trigger LMI, which adds to your upfront costs.
Does rental income count towards my borrowing capacity?
Yes, lenders include rental income in their serviceability assessment, but they usually discount it by around 20% to account for vacancies and maintenance costs. Your existing income and debts are also factored into the calculation.
How do the new negative gearing rules affect equity borrowing?
If you purchased an established property after 12 May 2026, you will only be able to offset rental losses against residential property income from 1 July 2027, not against wages. New builds retain the existing negative gearing arrangements and capital gains tax discount.
