Top Tips to Use Home Equity for Your Next Property

Your existing home can fund your next property purchase without selling.

If you own property in Fremantle and have built equity over time, you can access that equity to fund a deposit on an investment property or second home. The process involves borrowing against the value of your current property while keeping it in your name. Your equity becomes the deposit for the next purchase, and you avoid the need to save from scratch or liquidate existing assets.

How Equity Release Works for Property Investors

Equity is the difference between what your property is worth and what you owe on it. When you use equity to buy another property, your lender reassesses your current home and allows you to borrow against that increased value. The borrowed funds are used as a deposit for the second property, and both properties are typically used as security for the combined loan amount.

Consider someone who bought a character cottage in South Fremantle years ago for $450,000 with a $360,000 loan. The property is now worth $750,000, and the loan balance sits at $280,000. That leaves $470,000 in equity. A lender will typically allow access to 80 per cent of the property's value, which is $600,000, minus the existing loan of $280,000. That gives $320,000 in usable equity, enough to fund a deposit and purchase costs on a second property without touching savings.

Loan to Value Ratio and How Much You Can Borrow

Lenders assess how much equity you can access based on loan to value ratio. Most lenders cap borrowing at 80 per cent of your property's value to avoid Lenders Mortgage Insurance. If you want to borrow more than 80 per cent, LMI applies, and the premium is calculated on the portion of the loan above that threshold.

Your total borrowing capacity also depends on serviceability. Lenders assess whether you can afford repayments on both the existing loan and the new loan, factoring in your income, expenses, and the expected rental income from the investment property. Rental income is included in serviceability calculations, but lenders typically only count 80 per cent of it to account for vacancy and maintenance costs.

Investment Loan Features That Support Property Portfolios

Investment loans are structured differently to owner-occupier loans. Interest only repayment options are common because they reduce monthly outgoings and allow investors to maximise tax deductions. Interest on an investment loan is deductible where the property is rented or genuinely available for rent, and interest only repayments mean you're only paying the deductible portion each month.

Variable rate loans offer flexibility and the ability to make extra repayments or redraw funds if needed. Fixed rate loans lock in certainty for a set period but come with restrictions on additional repayments and potential break costs if you exit early. Many investors split their loan between fixed and variable to balance certainty with flexibility. Refinancing an existing loan to release equity and fund a new purchase is a common strategy, particularly when your current loan no longer suits your goals.

Tax Treatment and Deductibility for Equity-Funded Purchases

The portion of your borrowing used to acquire or hold the investment property is deductible. If you refinance your owner-occupied home to access equity, only the funds used for the investment property purchase generate a deduction. The portion used to pay down your owner-occupied loan or for personal purposes remains non-deductible.

Keep loan accounts separate. If you mix investment and personal borrowings in the same account, the ATO may disallow part of your interest claim. Many investors set up a split loan structure where the equity release for the investment sits in its own account, and the original home loan remains untouched. That structure makes reporting simpler and protects your deductions.

Under changes that apply from the 2027-28 income year, losses on established residential investment properties acquired after 12 May 2026 can only be offset against income from other residential properties, not salary or wages. Properties purchased before that date, or eligible new builds, continue to allow full negative gearing. If you're using equity to buy an established property now, your holding costs can still be offset against all income until you sell, provided the property was acquired or contracted before 12 May 2026.

Serviceability Rules and Debt-to-Income Limits

Lenders assess your ability to service the combined debt on both properties. They apply a buffer of at least 3 percentage points above the actual loan rate, meaning if your investment loan has a rate of 6.5 per cent, the lender tests serviceability at 9.5 per cent. That buffer has been in place since October 2021 and applies to all new lending through banks and authorised lenders.

From February 2026, banks are also subject to a debt-to-income lending limit. No more than 20 per cent of new investor loans can go to borrowers with total debt six times their gross income or higher. If your income is $120,000 and your combined borrowing across both properties exceeds $720,000, you may fall within that threshold. Not all lenders are subject to the same rules, and working with a broker helps you identify lenders with appetite for higher DTI lending where your situation supports it.

Using Offset Accounts to Manage Cash Flow

An offset account linked to your investment loan reduces the interest charged without affecting the deductible loan balance. If you have $30,000 in an offset account linked to a $500,000 investment loan, you only pay interest on $470,000. The full $500,000 remains deductible because the loan balance hasn't changed.

This structure works well if you're holding surplus cash or building a buffer for vacancy periods, property maintenance, or future purchases. Offset balances don't reduce the loan amount for the purpose of calculating your loan to value ratio under lender policy, so your equity position and serviceability aren't impacted by keeping funds in offset.

Fremantle Market Conditions and Investment Demand

Fremantle's proximity to the port, the CBD, and the western suburbs keeps demand consistent for long-term rentals. Character homes in South Fremantle and Beaconsfield attract professionals and downsizers, while modern townhouses closer to the Fremantle Train Station appeal to young renters and commuters. Vacancy rates in the area have remained low, and rental yields support serviceability for investors purchasing in the region.

If you already own in Fremantle and the property has appreciated, releasing equity to buy in a neighbouring suburb or a regional growth area allows you to diversify your portfolio without selling your current home. Many Fremantle owners use equity to purchase in areas with different tenant profiles or stronger projected growth, spreading risk across locations and property types.

Structuring Loans Across Multiple Properties

When you own more than one property, loan structure becomes important. Some investors keep all borrowings under a single facility with multiple splits. Others separate each property into its own loan to maintain clarity and make future refinancing or sale simpler.

If you plan to sell your owner-occupied home in the future and convert your investment property into your residence, keeping loans separate avoids complications with apportionment and tax treatment. If you later decide to access more equity for a third property, a clean structure makes lender assessment faster and reduces the chance of delays or revaluation requirements.

Choosing the Right Investment Loan Product

Not all lenders offer the same investor loan products, and policy varies on how much equity can be accessed, what level of rental income is recognised, and how cross-collateralised securities are assessed. Some lenders allow you to use your owner-occupied property as security for the investment loan without cross-collateralising both properties under a single mortgage. Others require both properties to be secured together, which can limit your ability to refinance or sell one property independently.

Ask about portability, redraw restrictions, and ongoing fee structures before committing. Some lenders charge higher rates on interest only loans or apply different serviceability tests to investors with multiple properties. A loan health check before applying helps you understand where your current position sits and whether refinancing the entire portfolio delivers a stronger outcome than adding a new facility.

Call one of our team or book an appointment at a time that works for you. We'll assess your equity position, model your borrowing capacity across both properties, and structure the lending to support your goals while keeping your tax position clear and your flexibility intact.

Frequently Asked Questions