A lot of Mackay homeowners have paid down their loan while their home's value has moved. That gap is equity, and it can be the deposit for an investment property without you having to save cash from scratch. It's a well-worn path, but the detail matters. How much you can use, how you structure it and whether you can carry the repayments all decide whether it works for you.
Equity and usable equity
Equity is simply your home's value minus what you owe. Usable equity is the part a lender may let you borrow against.
Most lenders work from 80% of the property's value. That's because lenders mortgage insurance generally applies when the amount borrowed is more than 80% of the property's value. Some lenders may lend higher with mortgage insurance, but 80% is the usual starting point.
Illustrative example with round numbers:
- Home value: $600,000
- 80% of value: $480,000
- Current loan: $300,000
- Usable equity: $480,000 minus $300,000 = $180,000
Your total equity is $300,000, but in this example the usable amount is $180,000. The value used is the lender's valuation, which may differ from what you think the house would sell for.
How the equity becomes a deposit
Continuing the illustrative example, say you want to buy a $400,000 investment property. To keep the investment loan at 80% without mortgage insurance, you'd need $80,000 for the deposit plus money for purchase costs such as transfer duty, legal fees and inspections. You could release part of your $180,000 usable equity to cover those, then take a separate loan for the remaining $320,000 secured against the investment property.
You end up with three pieces of debt: your existing home loan, the equity release, and the investment loan. How they're set up makes a real difference.
Structure matters
There are two common ways to set this up.
- Separate loans. The equity release is a new loan split secured against your home. The investment loan is secured against the investment property. Each property stands on its own.
- Cross-collateralised. Both properties are used as security for the combined borrowing. It can look simpler, but it ties the properties together. Selling one or refinancing one later can involve the lender revaluing both.
Many borrowers prefer separate loans for the flexibility. Which suits you depends on the lender and your circumstances.
Keeping each loan for a single purpose also keeps your records clean. The ATO's rental property guidance says that whether interest is deductible depends on what the borrowed money is used for. The property that secures the loan doesn't decide it. Where one loan is used partly for private purposes, the interest has to be apportioned. Your accountant can advise on how this applies to you before you set up the loans.
Can you service both loans?
Equity gets you the deposit. It doesn't pay the repayments. The lender will assess whether you can afford the existing home loan, the equity release and the new investment loan together, along with your other debts and living costs.
Lenders generally count rental income, though many count only part of it to allow for vacancies and costs. They also assess repayments at a rate above the current rate as a buffer. If your income relies on overtime, as many Bowen Basin incomes do, the way the lender treats that overtime can change the result. Our mining and FIFO home loans page covers that.
Risks to weigh up
- Values can fall. If both properties drop in value, you could owe more than they're worth.
- Vacancies and repairs. Rent can stop and maintenance can arrive at the same time.
- Your home is on the line. Borrowing against it means your home secures part of the investment debt.
- Interest-only periods end. If any part is interest-only, repayments rise when that period ends.
- Single-industry markets. Mining towns can move sharply with the resources cycle. Some lenders apply tighter limits there. See our Moranbah home loans page if you're looking at the Isaac.
Where to start
- Get a sense of your home's value and your current loan balance.
- Talk to your accountant about ownership structure and tax before you buy.
- Have a broker check your borrowing capacity and how lenders would value your home.
- Decide the structure, then apply for the equity release and conditional pre-approval on the investment loan.
If your current loan is with a lender whose policy doesn't suit, releasing equity may involve a refinance. Our refinance page explains what that involves, and our investment loans page covers the wider picture.
For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.
Talk it through
Want to know how much usable equity you might have? Call or text 0458 773 002, or start with the free assessment at our contact page.
Common questions
How much equity can I use to buy an investment property?
Many lenders let you borrow up to 80% of your home's value, minus what you owe, without lenders mortgage insurance. It depends on the lender's valuation and your ability to service the loans.
Do I still need a deposit if I use equity?
The equity usually acts as your deposit and covers purchase costs, so you may not need cash savings. The lender still assesses whether you can afford all the repayments.
Should the loans be separate or cross-collateralised?
Many borrowers prefer separate loans so each property stands on its own, which can make selling or refinancing simpler later. It depends on the lender and your circumstances.
Is the interest on an equity loan tax deductible?
The ATO says deductibility depends on what the borrowed money is used for. Your accountant can advise on your situation.
Sources
- Moneysmart: Lenders mortgage insurance (LMI)
- ATO: Rental expenses (Rental properties 2025), interest on loans
This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Investment loans.