Everything You Need to Know About Using Home Equity

Yes, you can use your home equity to buy another property.

Most lenders will let you borrow up to 80% of your home's value minus what you still owe, which becomes your available equity. Go beyond 80% and you'll pay Lenders Mortgage Insurance, but some property investors accept that cost to get into the market sooner.

For Carlingford residents, this approach makes particular sense. Median house prices in the area have climbed steadily over the past decade, meaning many homeowners sitting in established properties near James Ruse Drive or around Cumberland Hospital have built substantial equity without realising it. That equity can fund your investor deposit and associated costs like stamp duty without needing to save cash separately.

How Lenders Calculate Your Available Equity

Your lender takes your property's current value, multiplies it by 0.8, then subtracts your outstanding mortgage. The difference is what you can access.

Consider a Carlingford homeowner with a property valued at $1.4 million and an outstanding mortgage of $600,000. At 80% loan to value ratio, the maximum lending is $1.12 million. Subtract the $600,000 still owed, and $520,000 in equity becomes available. That's enough to cover a 20% deposit on a $500,000 investment property in a growth suburb, plus stamp duty and other purchasing costs, without touching savings.

Some lenders will push to 90% or even 95% if you're willing to pay LMI, but the insurance premium can run into tens of thousands of dollars depending on the loan amount. Most investors stick to 80% unless they've identified a property with strong rental yield that offsets the extra cost.

What Investment Loan Features Matter When Using Equity

You'll apply for two separate loans: one against your existing home to release equity, and an investment loan against the new property.

Interest only repayments on the investment loan keep your monthly outgoings lower, which matters when rental income needs to cover most of the mortgage. The difference between principal and interest and interest only can be several hundred dollars per month on a $500,000 loan. You'll still need to demonstrate you can service both loans if the investment property sits vacant, which is where your salary and existing equity provide a buffer.

Variable rate products give you flexibility to make extra repayments or exit without break costs, while fixed rate options lock in your investor interest rates for one to five years. Some investors split their loan between both. The rental income offsets the mortgage cost either way, and any shortfall becomes a claimable expense at tax time through negative gearing benefits.

How Lenders Assess Rental Income in Your Application

Lenders don't count 100% of projected rent when calculating your borrowing capacity.

Most use 80% of the expected rental income to account for vacancy periods and maintenance costs. If you're buying a unit near Carlingford Court that rents for $600 per week, the lender will only count $480 per week in your serviceability assessment. That 20% buffer protects against the reality that investment properties don't stay tenanted every single week of the year, and body corporate fees or repairs eat into your net return.

Your existing salary still does most of the heavy lifting. Lenders want to see that you can cover both mortgages, rates, insurance, and living expenses even if the investment property generates no income for several months. This is where strong equity in your Carlingford home helps, because it reduces the loan amount you're requesting relative to the combined property value across both assets.

Should You Fix or Go Variable on an Investment Loan

This depends on whether you value certainty or flexibility.

A fixed interest rate protects you if rates climb, which matters when your repayments are tied to rental income that doesn't adjust quickly. Lock in for three years and your cash flow is predictable, making it simpler to plan for portfolio growth or additional purchases. But if rates fall or you want to sell the investment property earlier than expected, break costs can be significant.

Variable interest rate products let you make extra repayments, redraw funds, or refinance without penalty. You'll also benefit from any rate discount your lender offers as the market shifts. In our experience, investors who plan to hold the property long term and want stable repayments lean toward fixed, while those building a portfolio quickly or anticipating life changes prefer variable. Some split the loan 50/50 to get both benefits.

What Costs to Budget Beyond the Deposit

Stamp duty in New South Wales will be your largest upfront cost after the deposit.

On a $600,000 investment property, stamp duty runs close to $24,000. Add conveyancing, building and pest inspections, and lender application fees, and you're looking at another $3,000 to $5,000. If you're using equity to fund the purchase, make sure you're accessing enough to cover all of these without dipping into your emergency buffer.

Ongoing costs include council rates, landlord insurance, property management fees if you're not self-managing, and occasional maintenance. If you're buying a unit, factor in quarterly body corporate levies. These expenses reduce your taxable income through negative gearing, but you still need the cash flow to pay them when they're due. Many investors underestimate how much of the rental income gets absorbed by holding costs, especially in the first year.

When LMI Might Be Worth Paying

Paying Lenders Mortgage Insurance to access more than 80% of your equity makes sense in specific situations.

If property values in your target area are rising faster than you can save, the cost of LMI might be offset by capital growth within 18 months. As an example, an investor we worked with borrowed at 90% LVR and paid $18,000 in LMI to secure a property in a suburb where values jumped 12% in two years. The equity gain from that growth exceeded the insurance cost, and they refinanced back to 80% LVR once the property revalued higher.

But if you're buying in an area with flat growth or high vacancy rate, paying LMI just increases your debt without a clear return. Speak with someone who can run the numbers based on your specific property and timeline rather than making assumptions about future growth.

How Refinancing Your Carlingford Home Fits In

Releasing equity often means increasing your home loan balance.

Some homeowners refinance their existing mortgage at the same time, which can be useful if your current interest rate is higher than what's available now or if your loan lacks features like an offset account. Refinancing both your home and taking out a new investment loan simultaneously can be structured so the investment debt remains separate, which keeps your tax deductions clear when you're claiming interest as an expense.

A loan health check before you start the process will show whether refinancing makes sense or whether you're better off leaving your existing home loan untouched and just accessing equity through a separate split. The structure matters more than most investors realise, because mixing personal and investment debt can complicate your tax position later.

Call one of our team or book an appointment at a time that works for you. We'll calculate your available equity, compare investment loan options from lenders across Australia, and structure the finance so both your Carlingford home and your investment property work together to build wealth without overextending your cash flow.

Frequently Asked Questions