How do you use equity to buy an investment property?
You borrow against your home, by topping up your loan or opening a separate loan account, and put that money toward an investment property. The lender works out your usable equity from a current valuation of the home that it accepts. It then tests whether you can repay all your debt. A lender or broker assesses this, not FAA Property.
Usable equity rests on a valuation the lender accepts, and borrowing capacity is a separate test.
Last reviewed 7 October 2026. Reviewed against ASIC MoneySmart and ATO guidance, 7 October 2026. Credit assistance is provided under Australian Credit Licence 388789, which authorises credit services only. FAA is not a lender. General information only, not personal financial, credit or tax advice. FAA Property does not provide personal financial, tax or SMSF advice. Financial advice sits with other FAA Group companies, which are authorised representatives of Lifespan Financial Planning Pty Ltd (AFSL 229892).
If you own your home in Queensland and want to buy an investment property, equity is usually where the money question starts. Lending rules are national, so each step below cites its source and the date we checked it. It covers how a lender sets usable equity, how it tests repayments, how the new loan is secured and what that means for your home. FAA Property sources investment property. Usable equity and borrowing capacity are assessed by a lender or broker, not by FAA Property.
An equity illustration, step by step
Illustration only: round numbers, not a quote, valuation or estimate of what any reader can borrow. A lender or broker assesses usable equity, not FAA Property.
Total equity
$300,000
The owner thinks the home is worth $600,000 and owes $300,000. Equity is the value less the money owing, so that's $300,000.
The lender's value replaces yours
$560,000
A top-up means a fresh LVR on a current valuation. Say the bank values the home at $560,000.
A share of that value
$448,000
The loan to value ratio is the loan divided by the home's value, and APRA tells banks to take particular care with any draw-down on home equity, especially one that would lift it above the level first agreed. This illustration uses an 80% ceiling, because Moneysmart notes that below 20% equity a refinance may trigger lender's mortgage insurance. 80% of $560,000 is $448,000.
Minus the loan
$148,000
$448,000 less the $300,000 owing leaves $148,000 of usable equity. Against $300,000 of total equity.
Still not an approval
Next: the repayment test
That's the most the security supports. The repayment test comes next. What the purchase itself needs in cash is set out in how much cash an investment purchase needs.
Why the lender's valuation sets usable equity
Your equity is what your home is worth, less what you still owe on it. When you borrow against it, the lender measures that worth against a current valuation. Borrowing against equity makes your home collateral, which is property put up as security for a loan.
Lenders such as Westpac separate total equity from usable equity, which is the part you can actually access and borrow against. To find it, a lender or mortgage broker may ask for a formal bank valuation of your home.
APRA, the regulator that supervises banks, spells out what sound practice looks like. When you ask for a top-up or any other formal increase to your loan, a bank should recalculate the loan to value ratio (LVR) at that time. LVR is the loan divided by the value of the property. And the value should come from an appropriate, current valuation.
APRA also tells banks to take particular care with any draw-down on the equity in a home, especially one that would lift the LVR above the level first agreed. A top-up is a new lending decision, judged on the value and LVR at the time you ask. So the starting point for any equity loan is the value the bank accepts.
Look back at the illustration. The bank's valuation came in $40,000 under the owner's guess, and usable equity fell by $32,000 because of it. Those are made-up numbers, but the direction holds: a lower valuation leaves less to draw.
Before you apply, ask the lender which valuation it will use and what LVR ceiling it applies to a top-up. A lender or broker assesses this, not FAA Property.
Top-up or separate loan: how the equity is drawn
There's more than one way to draw equity, and which ones you can use depends on factors a lender can talk you through.
Westpac describes a top-up, where you increase your existing home loan, as a common way to borrow against equity. You'll put more money toward repayments, though.
Another option Westpac lists is a new, separate loan account. It may let you pick different features from your current home loan. That separation matters for tax.
| Top-up | Separate loan account | |
|---|---|---|
| What it is | Your existing home loan is increased | A new loan account beside your home loan |
| What the source flags | More money goes to repayments | May allow different features from your home loan |
If you switch to a new loan at the same time, that's refinancing, and it has its own costs. Moneysmart lists a discharge fee to close the old loan and an application fee for the new one as costs to compare. On a fixed rate there may be a break fee too. Moneysmart also warns that refinancing can stretch the loan term, and a longer loan means more interest.
With less than 20% equity left in your home, refinancing may trigger lender's mortgage insurance. LMI and the deposit are covered on the deposit page linked above.
Keep the investment borrowing in its own account
For tax, the ATO looks at what the borrowed money is used for. That use decides whether the interest is deductible, whichever property secures the loan.
Under the ATO's current rules, you can claim interest on loan money used to buy a rental property. Its own example: a loan secured against a rental property but used to buy a private home isn't deductible. In another, Pauline redraws money from her home loan to pay a rental property deposit. That money paid the deposit on a rental property, so the interest on it is deductible.
Mixing gets messy. If one loan account pays for private and rental costs, the ATO says you need accurate records to separate the interest, and repayments must be apportioned across both parts for the life of the loan. Tax ruling TR 2000/2 adds that you can't direct repayments at the private part alone as if it were a separate debt. Where a line of credit sub-account is only ever used for income-producing purposes, the interest on it stays fully deductible.
So a separate account for the investment borrowing keeps its purpose easy to show.
That's the position today. The ATO says that from 1 July 2027, negative gearing for residential property will be limited to new builds, with properties held at the 12 May 2026 announcement exempt. Read about the 1 July 2027 negative gearing limit before you count on negative gearing, or start with how negative gearing works. This is general information, not tax advice; talk to your tax adviser.
Usable equity is not borrowing capacity
Usable equity says what your home can secure. Whether you can repay is a separate test.
APRA says any significant increase in a loan would normally get a full assessment of your capacity to repay. On 28 May 2026, APRA said the mortgage serviceability buffer will stay at 3 percentage points. That means banks must test your repayments at a rate at least 3 percentage points above the loan's rate, ignoring any honeymoon or introductory rate.
The test covers more than the new loan. APRA expects banks to apply the buffer to your existing debts as well, including any amount available for redraw. Your current home loan counts.
Rent gets marked down too. APRA considers prudent lending applies a haircut of at least 20% to expected rental income, and a bigger one where the risk of the property sitting empty is higher. Good practice is for a bank to place no weight on tax benefits you might get from running the rental at a loss. There's more on that split in cash flow versus tax result.
APRA's 28 May 2026 settings also limit how much high debt-to-income lending banks can do. It caps the share of each bank's new owner-occupied and investment loans that can be written at a high debt-to-income ratio, which makes it a setting for banks. Your own borrowing is assessed through the repayment test above.
Last checked 7 October 2026. These settings can change. A lender or broker assesses your borrowing capacity, not FAA Property.
How the new loan is secured, including on your next purchase
Collateral is property you put up as security for a loan. With equity, the question is which property secures which loan.
Westpac describes cross-collateralisation like this. You end up with two loans: the original mortgage secured by your home, and a new mortgage secured by both your home and the investment property. The alternative is a loan secured by its own property alone.
APRA's capital guidance to banks, APG 112, says that when loans are cross-collateralised, the loans are added together and the properties are added together to work out the LVR. Where one loan is secured by several properties, the bank uses their combined value. So, for these capital calculations, the bank treats the properties as one pool.
A loan secured by its own property alone
Home loan
Your home
Investment loan
The investment property
Cross-collateralisation, as Westpac describes it
The original mortgage
Secured by your home
A new mortgage
Secured by both your home and the investment property
APRA capital calculation (APG 112): the loans are added together and the properties are added together to work out the LVR.
Westpac says it may give you less flexibility than other ways of using equity, because separating the two securities later could mean more work. Bankwest's glossary says changing a loan or property, such as refinancing or selling, may affect anything that's cross-collateralised. Westpac also says every way of using equity carries risk, because a default on any of your loans could mean losing more than one asset.
The same question applies to your next purchase. Equity drawn from an investment property you already own can still leave a loan tied to more than one property. For the property side, see building a property portfolio in Queensland.
FAA Property doesn't recommend a loan structure. Ask your lender how the new loan will be secured; a lender or broker assesses this, not FAA Property.
What extra borrowing puts at risk
Using equity makes your home the security for an investment. Moneysmart puts it plainly: if the investment turns bad or you can't keep up the repayments, you could lose your home.
Moneysmart calls borrowing to invest high risk: it magnifies losses, and the loan and interest still have to be repaid however the investment performs. What it asks borrowers to check:
- Rates. On a variable rate, could you still afford repayments if rates rose by 2% or 4%?
- Empty weeks. Don't rely on rent to cover the mortgage. The property may be empty at times, so check you could cover all its expenses for a while with no tenant.
- Value. If the property's value falls, you could owe more than it's worth.
- Interest-only. At the end of an interest-only period the loan changes to principal and interest, and repayments go up.
- The security. With a secured debt, if the loan can't be repaid, the lender can sell the asset to get its money back.
Moneysmart suggests borrowing less than the most a lender offers, and keeping an emergency fund or cash you can reach quickly.
If someone selling you a property is pushing you to release equity in a hurry, read the warning signs of a property spruiker first.
Questions to take to a lender or broker
ASIC says a credit licensee must make reasonable inquiries about your financial situation and verify it, and must not suggest or assist with a credit contract that's unsuitable for you. A mortgage broker must act in your best interests when suggesting a loan. Go in with these questions.
Take these to a lender or broker
- What value will you use for my home, and will you order a formal valuation?
- What LVR ceiling applies to a top-up, and what does that leave as usable equity?
- Can the investment borrowing sit in its own loan account?
- How will the new loan be secured? Will any property be cross-collateralised?
- What buffer rate will you test my repayments at, and how much of the expected rent will you count?
- Do you hold a credit licence, or are you a licensee's representative?
Finance is one part of due diligence on an investment property; the rest is in the full investment purchase process.
FAA Property's part is the property. It sources new-build and house-and-land investment property across South East Queensland. It is paid by builders and developers when a purchase proceeds. Usable equity and borrowing capacity are assessed by a lender or broker, not by FAA Property.
Your lender or broker answers the borrowing questions, and that assessment isn't done by FAA Property. When you're ready to look at the property itself, FAA Property can talk it through with you. FAA Property is paid by builders and developers when a purchase proceeds, and the strategy session costs you nothing.
Discuss My Investment Property PurchaseFrequently asked questions
Should I use equity to buy an investment property?
That depends on your whole financial position, and a lender or broker must check the loan isn't unsuitable for you. Moneysmart's general points: borrowing to invest magnifies losses, and the loan is repaid however the property performs. Your home becomes security, so you could lose it if repayments can't be met. Check you could cope with rate rises of 2% or 4% and with weeks with no tenant. A lender or broker assesses suitability, not FAA Property.
How much equity should I have before buying an investment property?
Compare your usable equity, worked out from a current valuation the lender accepts or may require and its LVR ceiling, with the cash the purchase needs. Lenders such as Westpac separate usable equity, the part you can access and borrow against, from total equity. Even then, the lender still runs a separate repayment test. Our page on how much cash an investment purchase needs works through the deposit and buying costs, and a new package brings its own house and land package costs. A lender or broker assesses your equity, not FAA Property.
Is it a good idea to release equity to buy another property?
It ties more of what you own to your borrowing. Westpac warns that a default on any of the loans could mean losing more than one asset. If a property ends up cross-collateralised, Bankwest says a later sale or refinance may affect it. And if values fall, you could owe more than a property is worth. Ask how the new loan will be secured, and check your broker holds a credit licence or is a licensee's representative. A lender or broker assesses this, not FAA Property.