Unlocking Wealth: How to Use Equity in Your Current Home to Buy an Investment Property

If you’re considering buying an investment property, your existing home might hold the key.

Many Australians are sitting on a goldmine and don’t even realise it. Property prices have seen strong growth over the past decade, and if you've owned your home for a few years or more, chances are you’ve built up equity – a powerful financial tool that could help you take the next step toward wealth creation or lifestyle freedom.

In this article, we’ll explore how equity works, how to access it, and how it can be used to purchase an investment property or holiday home. We’ll also look at the benefits, risks, and how a mortgage broker can help you navigate the process.

What is Equity?

Equity is the difference between the current market value of your home and the balance remaining on your mortgage.

Example:If your home is worth $900,000 and you owe $400,000 on your mortgage, your equity is $500,000.

However, not all of that equity is immediately available to use. Most lenders will let you borrow up to 80% of your home’s value without needing to pay Lenders Mortgage Insurance (LMI), though some will consider more with LMI or special policies.

Using the example above:

• 80% of $900,000 = $720,000

• Available equity = $720,000 - $400,000 (current loan) = $320,000 usable equity

This usable equity can act as a deposit or even fully fund your next property purchase.

How to Use Equity to Buy an Investment Home

There are two main ways to access equity:

1. Refinance and Cash Out

You refinance your existing loan, increasing the loan amount and taking the equity as cash. The funds can then be used for a deposit or full purchase of another property.

2. Establish a Line of Credit or Split Loan

You set up a separate loan facility (often as an interest-only loan) secured by your home’s equity. This way, you keep your home loan and investment loan separate, which can help with tax deductions and easier tracking.

Why Consider Using Equity to Invest?

✅ No Need to Save a Large Deposit

Using equity means you don’t have to wait years to save up a deposit – you’ve already earned it through your existing property’s growth and loan repayments.

✅ Faster Entry into the Market

By leveraging equity, you can act quickly when a good investment or holiday property comes along, avoiding delays and missed opportunities.

✅ Tax Benefits

For investment properties, the interest on the portion of the loan used to purchase the property is generally tax-deductible, which can improve your cash flow position.

✅ Build Your Wealth

Property is a long-term growth asset. Using equity to purchase a well-located, income-generating investment can grow your net worth over time and potentially support retirement planning.

Do I Need to Pay Off My Current Home Loan First?

No. You don’t need to completely pay off your current home loan to access equity – you just need to meet the lender’s equity and serviceability requirements.

Lenders will assess:

• The current value of your home

• The balance remaining on your mortgage

• Your income and expenses

• Existing debts and liabilities

• The potential rental income from the new investment (if applicable)

If you have sufficient usable equity and can afford the repayments on both your current home loan and the new investment loan, you're in a strong position to move forward.

Will Banks Use Rental Income to Assess My Application?

Yes – most lenders will factor in expected rental income from your future investment property when calculating your borrowing power. However, they typically use only 70–80% of the rental income to allow for potential vacancies and expenses.

If you're buying a holiday home and plan to rent it out only occasionally (e.g., via Airbnb), lenders may or may not accept this income depending on:

• Consistency of bookings

• Location and seasonal demand

• Whether there's a rental appraisal from a licensed agent

A mortgage broker can help you identify lenders who are more flexible with short-term rental income.

Should You Buy New or Established Property?

This depends on your goals and investment strategy.

New Property:

• Pros: Higher depreciation benefits, lower maintenance, potential developer incentives, attractive to tenants.

• Cons: Usually more expensive per sqm, sometimes less capital growth in the short term.

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Established Property:

• Pros: Proven location performance, opportunity to add value through renovation, generally lower price per sqm.

• Cons: Older properties may require more maintenance, limited depreciation benefits.

  
  

What Are the Risks of Using Equity to Invest?

While leveraging equity can accelerate your wealth journey, it’s not without risks.

⚠️ Increased Debt

You're borrowing more money, which means higher repayments and more exposure to interest rate rises.

⚠️ Market Risk

Property values can go down as well as up. If your property’s value drops, your equity could shrink or even turn negative.

⚠️ Cash Flow Strain

If the investment property is not positively geared (i.e., rental income doesn't cover expenses), you’ll need to cover the shortfall from your own income.

⚠️ Cross-Collateralisation

Some lenders link your existing home and new property together in a single loan structure. This can make things complex if you ever want to sell one property or refinance. We try to avoid cross-collateralisation unless circumstance make it necessary.

How a Mortgage Broker Can Help

Navigating equity release, investment loans, and lender policies can be tricky. This is where an experienced mortgage broker can make a huge difference.

Here’s how they can help:

• Assess how much usable equity you have

• Compare lenders to find those that suit your goals

• Avoid cross-collateralisation traps

• Help you structure loans to maximise tax effectiveness

• Estimate your borrowing power (including rental income)

• Advise on interest-only vs. principal and interest options

• Support you through the loan approval process

And best of all, a mortgage broker’s service is usually free to you – they’re paid by the lender when your loan settles.

Tips for a Successful Equity Investment Strategy

1. Get a Professional Valuation: Before making plans, know exactly how much equity you can access based on your home’s current market value.

   
   

2. Talk to an Accountant: Ensure you understand the tax implications and structure the investment loan correctly.

   
   

3. Research the Investment Property Market: Look for high-demand areas with strong rental yields and growth potential.

   
   

4. Buffer Your Budget: Build in a buffer for unexpected costs, interest rate rises, and rental vacancies.

   
   

5. Separate Loans Where Possible: Keep your home loan and investment loan separate for clarity and tax reasons.

   
   

Case Study: The Smiths' Equity Journey

Jane and David bought their South Brisbane home in 2016 for $550,000. In 2025, it's now valued by the bank at $950,000, and they still owe $350,000 on the mortgage.

• 80% of $950,000 = $760,000

• Usable equity = $760,000 - $350,000 = $410,000

With our help, they refinanced their exiting loan and draw out $300,000 of equity. They use $200,000 as a 20% deposit on a $1 million investment property on the Northern Gold Coast, the remaining funds cover stamp duty, legal fees, and some minor non-structural refurnbishment to maximise their rent.

The property earns $850/week in rent, and their accountant structured the loan to maximise tax benefits.

They didn’t need to sell anything, save a new deposit, or pay LMI – they simply leveraged what they already owned.

Final Thoughts: Is Now the Time to Use Your Equity to buy an Investment Property?

If you want to buy an investment in property, don’t let your savings (or lack of them) hold you back. Use equity in your existing home and unlock the next step in your financial journey.

Used wisely, equity is one of the most powerful tools available to build wealth through property. Just be sure to get professional guidance, do your research, and have a clear strategy. Your dream investment might be closer than you think – and it could all start with a simple conversation with Etairos Finance.

Ready to unlock the potential in your home?Speak to the team at Etairos Finance today and let us help you turn your equity into opportunity.