The easiest way to use home equity for investment property

If you own property in Moorabbin and want to buy an investment without liquidating other assets, your existing home equity is often the most direct path forward.

Homeowners who have built up equity can borrow against that value to fund a deposit and purchase costs on a second property. The approach avoids the need to save for years or sell down other holdings, and it lets you keep your existing home while building a property portfolio. The loan structure, serviceability calculation, and timing all depend on how much equity you can access and how lenders assess your capacity to service both properties.

How lenders calculate usable equity

Usable equity is not the same as the difference between your property value and your loan balance. Lenders apply a cap, typically 80% of your property value, to determine how much you can borrow against without incurring Lenders Mortgage Insurance. If your Moorabbin home is valued at $900,000 and you owe $450,000, your total borrowing limit sits at $720,000. Subtract the existing loan and you have $270,000 in accessible equity. From that figure, you need to allocate funds for the deposit on the new property, stamp duty, and settlement costs.

Consider a homeowner with a property near South Road who refinances to release $250,000 in equity. They allocate $180,000 toward a 20% deposit on a $900,000 investment property in Bentleigh, then set aside $50,000 for stamp duty and another $10,000 for legal fees and loan establishment costs. The remaining $10,000 stays in an offset account as a buffer. The refinance replaces their existing home loan with a larger facility, and a separate investment loan is established for the purchase. Both loans are serviced from the borrower's income and, once tenanted, the rental income from the investment property.

Serviceability across two properties

Banks assess whether you can afford repayments on both your home loan and the new investment loan at the same time. They calculate the investment loan repayments on a principal and interest basis, even if you intend to use interest only, and apply a buffer rate that sits above the actual interest rate. Rental income is included, but lenders discount it by around 20% to account for vacancy and maintenance.

In our experience, borrowers often underestimate how much the serviceability test tightens when a second property is added. A couple earning $180,000 combined might comfortably service a $600,000 home loan, but once they add a $720,000 investment loan, the repayment obligations double. Even with $40,000 in annual rental income from the investment property, the lender will only credit around $32,000 after applying the vacancy discount. If their existing commitments include car loans, childcare costs, or other debt, the application can fall short of approval.

Interest only versus principal and interest

Most property investors using equity opt for interest only repayments on the investment loan. This structure reduces the monthly outgoing, improves cash flow, and allows the rental income to cover most or all of the loan cost. Interest only terms typically run for five years, after which the loan reverts to principal and interest unless you request an extension.

The advantage is immediate cash flow. A $720,000 investment loan at a variable rate might cost around $3,600 per month on an interest only basis, compared to $4,800 on principal and interest. That difference matters when you are managing two mortgages and want to keep your offset or savings intact for other purposes. The downside is that the loan balance does not reduce during the interest only period, so you are relying on capital growth and rental income to build equity in the investment property rather than paying down debt.

Fixed rates offer certainty but limit flexibility. If you lock in a rate for three years and want to access further equity or sell the property during that period, you will likely face break costs. Variable rates allow unlimited additional repayments and redraw without penalty, which suits investors who want the option to pay down the loan or access funds as their circumstances change.

Tax treatment and deductibility

Interest on the investment loan is generally deductible against the rental income you earn, but only if the funds are used to purchase or improve an income-producing asset. If you refinance your home and draw equity, the portion used for the investment property is deductible, while the portion that remains attached to your home loan is not. Lenders typically split these into two separate loan accounts to maintain clear records for the Australian Taxation Office.

Keep in mind that negative gearing rules changed from 1 July 2027. If you purchased an established residential investment property after 12 May 2026, rental losses can only be offset against rental income or capital gains from residential property, not against your salary. Losses can still be carried forward, but the immediate tax benefit is more limited than it was under the old rules. New builds retain the full negative gearing deduction, which is one reason some investors are now prioritising off-the-plan or newly completed properties over established stock.

Structuring loans to preserve flexibility

When you refinance to release equity, the way you structure the loans affects both your tax position and your future options. Most brokers recommend keeping your owner-occupied home loan separate from the investment loan, even if both are held with the same lender. This separation ensures that any future repayments, offsets, or redraw on your home loan do not muddy the deductibility of interest on the investment facility.

Some borrowers also establish a line of credit against their home equity rather than rolling the released funds into a standard variable loan. A line of credit charges interest only on the amount drawn, which can be useful if you are buying a property off the plan and need to draw funds in stages. The interest rate is typically higher than a standard variable loan, so the structure works for short-term liquidity rather than long-term holds.

Timing and settlement coordination

If you are using equity to fund a deposit, the refinance on your existing property needs to settle before or at the same time as the purchase of the investment property. Most solicitors will not allow settlement on the new property until the funds are available, which means you need to build in time for the refinance application, valuation, and approval process.

In a scenario where a buyer finds an investment property in Highett and signs a contract with a 60-day settlement, they need to lodge the refinance application within the first two weeks to allow for processing. Valuations in Moorabbin and surrounding areas are usually completed within a week, but if the lender requires additional documentation or if there are delays with the title search, the timeline can extend. Some buyers include a finance clause in the contract that allows them to withdraw if the refinance does not proceed, but sellers in a strong market may reject offers with long finance conditions.

How lenders assess rental income

Rental income is included in your serviceability calculation, but only after the property is tenanted and a lease is in place. If you are buying an investment property that is currently vacant, the lender will use a rental assessment based on comparable properties in the area. Some lenders accept a letter from a property manager estimating the weekly rent, while others require a formal rental appraisal.

Moorabbin's proximity to the airport, Southland Shopping Centre, and the Nepean Highway makes it a consistent rental market for both families and professionals. A three-bedroom house near the train station typically achieves between $600 and $700 per week, while a two-bedroom unit closer to Highett Road sits around $500 to $550. Lenders apply a 20% discount to these figures, so a property renting for $650 per week is assessed at $520 for serviceability purposes. If the rental income does not cover the interest cost, you need to demonstrate that your salary can absorb the shortfall.

What happens if your equity position changes

Property values fluctuate, and if your home value drops after you have received a valuation but before settlement, the lender may reassess your equity position. This is more common in volatile markets or when the valuation was borderline. If the revised valuation reduces your accessible equity below the amount required for the investment deposit, you may need to contribute additional cash or reduce the purchase price.

Some borrowers protect against this by ordering a pre-purchase property report or engaging a valuer independently before starting the refinance process. If the market is moving quickly, it is worth confirming the likely valuation range with your mortgage broker in Moorabbin before you commit to a purchase contract.

Call one of our team or book an appointment at a time that works for you. We will review your equity position, run the serviceability numbers, and structure the loans to suit your situation and your timeline.

Frequently Asked Questions