Borrowing and equity
How to use equity to buy an investment property
How usable equity is worked out, how lenders turn it into a deposit, and the loan structure choices — splits, cross-collateral, LMI — that matter years later.
General information only. This guide doesn’t consider your objectives, financial situation or needs, and isn’t financial, tax or credit advice. Tax and lending rules change — speak to a registered tax agent, licensed financial adviser or credit provider before acting on it.
The short version
- Usable equity is usually 80% of your home's value, less what you still owe.
- Equity can cover the deposit and costs — but you still need the income to borrow the rest.
- Keep the investment borrowing in its own loan split so the interest stays easy to prove.
- Avoid cross-securing both properties unless you understand what it gives the bank.
Most people who buy a second property don't save a fresh deposit in cash. They borrow against the value they've built up in their own home. That's what's meant by "using equity" — and it's the strategy behind most "buy with no savings" claims you'll see in property advertising.
It works, and it's very common. But it isn't free money: every dollar of equity you use is a dollar you borrow, secured against your home. This guide explains how usable equity is worked out, how it turns into a deposit, how to set it up so it doesn't cause problems later, and the risks to weigh first.
What equity is
Equity is the part of your property you own outright: its value minus what you still owe on it.
If your home is worth $850,000 and you owe $420,000, you have $430,000 of equity.
Usable equity: the number that matters
Lenders won't let you borrow against all of it. They generally lend up to 80% of a property's value without charging lenders mortgage insurance (LMI). So the equity you can typically access is:
Usable equity = 80% of the value − what you owe
Two things commonly make this smaller in practice:
- The value is the lender's, not yours. Banks order their own valuation, and it's often lower than the online estimates or what a neighbour sold for.
- Usable equity isn't approval. Having the equity doesn't mean you can borrow it. The lender still has to be satisfied you can afford the repayments on all your loans. See how much can you borrow?
You can work out your own figure with the Usable equity calculator on our home page.
How equity becomes a deposit
A typical equity purchase uses two loans.
- An equity loan secured against your home, for the deposit and purchase costs.
- An investment loan secured against the new property, for the rest of the price.
That last line is the whole point, and the whole risk. The investment is entirely debt-funded. Every cost of holding it — interest on both new loans, rates, insurance, repairs, any vacancy — comes out of your income.
Set it up so it stays clean
How the loans are structured won't change the purchase price, but it can make a real difference years later.
Keep the investment borrowing in its own loan split
For tax, what matters is what the borrowed money was used for, not which property secures it. The interest on the $155,000 used for the investment can be deductible, even though your home secures it. The interest on your home loan isn't.
Put the investment borrowing in a separate loan split, and keep it there. If you mix private spending into the same loan, or redraw from it for personal use, you'll have to apportion the interest — and the records get messy fast. See offset account or redraw?
Think carefully before cross-securing
Some lenders will suggest securing both loans with both properties together, called cross-collateralisation. It can look simpler, but it gives the bank a say over both properties:
- selling one property can mean the bank revalues the other and asks for money back before releasing it
- refinancing one loan to a different lender can mean moving both
- a fall in one property's value affects your borrowing against the other
Keeping each loan secured by its own property, often called a standalone structure, generally keeps your options open. Ask your broker to explain both before you sign.
Going above 80%
You can borrow more than 80% of a property's value, but you'll usually pay LMI. Moneysmart notes that a 20% deposit generally avoids it.
That's sometimes worth it — for example, if waiting to build more equity would cost more than the premium. On an investment loan, the ATO treats LMI as a borrowing expense, claimed over 5 years. See the real costs of buying.
The risks to weigh
- Your home is on the line. The equity loan is secured by your home. If you can't meet the repayments, that's the property at risk.
- Values can fall. Equity that exists today can shrink. If you have to sell in a downturn, the numbers can look very different.
- Rates can rise. You're now exposed to rate rises on more debt. Lenders already test your repayments at a buffer above the actual rate for this reason.
- Interest-only periods end. Many investment loans start interest-only. When that period ends, repayments rise to include principal.
- The tax refund may not come. For an established property bought today, from 1 July 2027 a rental loss can't reduce the tax on your wages — it's carried forward instead. Budget to fund the full shortfall yourself. See negative gearing after the 2026 Budget.
A sensible order of steps
- Get a realistic value. A broker can often arrange an indicative bank valuation before you apply.
- Work out your usable equity and the total cost of the purchase, including stamp duty in your state.
- Check your borrowing capacity and get pre-approval before you look at properties.
- Agree the structure with your broker: separate loan splits, and whether to avoid cross-securing.
- Keep a cash buffer for vacancies, repairs and rate rises. Equity can't pay a surprise bill; cash can.
- Get tax advice on ownership and structure before you sign the contract.
Sources
Checked against these sources on 15 September 2026.