How to Use Your Home Equity to Buy an Investment Property

If you’re a homeowner in Australia, you might be sitting on a valuable financial asset, your home equity. With property values rising across much of the country, many Australians are tapping into their equity to buy investment properties and build long term wealth.

But how does it work? And is it the right choice for you? Let’s break it down.

What is Home Equity?

Home equity is the difference between:

• The current market value of your property and

• The amount you still owe on your home loan.

For example, if your home is worth $800,000 and you owe $400,000 on your mortgage, your equity is $400,000.

How Can You Access Your Equity?  

You can usually access up to 80% of your property’s value (including your existing loan) without having to pay lenders mortgage insurance.

Using the example above:

80% of $800,000 equals $640,000.  

$640,000 minus $400,000 (your loan) equals $240,000 usable equity.  

That $240,000 could be used as a deposit on an investment property.

There are two common ways to access equity:

• Loan top-up or equity release

• Refinancing to a new loan with higher borrowing capacity
  

What Can You Use It For?  

You can use your equity to:

• Purchase an investment property

• Fund renovations or improvements

• Consolidate other high interest debts (be sure to ask your mortgage broker how to do this effectively)

• Invest in other assets (speak to your financial advisor)
  

Using it to invest in property can be a smart strategy if you:

• Have stable income and low debts

• Understand the responsibilities of being a landlord

• Have a long-term investment mindset

Pros and Cons of Using Equity  

Pros:  

• No need to save a new deposit  

• Enter the investment property market sooner  

• Use your current asset to grow your portfolio  

• Rental income could help cover the new loan repayments  
  

Considerations: 

• You’re increasing your debt  

• Your home is used as security  

• You’ll need to budget for ongoing costs eg for the new investment property - rates, insurance, maintenance & property management fees etc.  

• A market downturn could reduce your equity position  

That’s why getting expert advice is important before you move forward.

Is This Right for You?  

Everyone’s financial situation is different. Before using equity, ask yourself:

• Is my income stable enough to support another loan?

• Am I prepared for interest rate increases or changes in property values?

• Do I have a buffer for emergencies?
  

If you’re unsure, speaking with a mortgage broker can help you make a clear, confident decision.

Let’s Explore Your Equity Options Together  

Not sure how much equity you have or how to use it wisely? I can help you:

• Calculate your usable equity

• Compare refinancing your home loan or top-up options

• Create a plan to help you purchase your investment property