Usable Equity: How to Use Your Property's Equity to Buy an Investment Property

You don't need to save a new cash deposit to buy your next investment property. If your home has grown in value since you bought it, you may already have enough equity sitting in it — and lenders will let you access that equity as a deposit for the next purchase.

The key number is usable equity: the portion of your home's value a lender will let you access while keeping your loan-to-value ratio (LVR) at or below 80%. It's not the same as your total equity, and most first-time investors overestimate how much they can access.

The usable equity formula

Usable equity = (Current property value × 80%) − Outstanding loan balance

The 80% figure is the standard LVR threshold most lenders use without requiring Lenders Mortgage Insurance (LMI). Some lenders allow up to 90% or 95%, but above 80% you pay LMI — an additional cost that can run to tens of thousands of dollars and is usually not worth it for an investment purchase.

Use our Usable Equity Calculator to calculate yours in under a minute.

Worked example

	Amount
Current home value	$900,000
Outstanding mortgage	$420,000
80% of property value	$720,000
Usable equity	$720,000 − $420,000 = $300,000

Your total equity is $480,000 ($900k − $420k). But your usable equity — what a lender will let you access without LMI — is $300,000.

This $300,000 can potentially be used as a deposit on an investment property, subject to serviceability approval.

What you can use usable equity for

Lenders typically allow usable equity to be accessed for:

• Deposit on an investment property (most common use)
• Renovations on your existing property
• Deposit on a second home or holiday property
• Other large purchases the lender approves (shares, a car — though this is less common and often at a higher rate)

For property investment, the equity covers the deposit and often the purchase costs (stamp duty, legal fees). Whether you can borrow the full purchase price depends on the investment property's value and your ability to service the total debt across both loans.

How the purchase works in practice

When you use equity to buy an investment property, lenders typically set this up in one of two ways:

Option 1 — Equity loan (top-up): The lender increases your existing home loan by the equity amount. You now have one larger loan, secured against your home. You use the additional funds as your deposit and purchase costs for the investment property, then take out a separate investment loan for the remaining amount.

Option 2 — Line of credit: A separate facility secured against your home that you draw from as needed. More flexible but usually at a higher interest rate.

In both cases, your home is the security for the deposit portion. The investment property itself then secures the investment loan.

Example full transaction

You use $300,000 in usable equity from your home as a deposit. You want to buy an investment property worth $750,000.

	Amount
Investment property price	$750,000
Stamp duty + costs (approx.)	$32,000
Total funds needed	$782,000
Deposit from equity (20%)	$150,000
Stamp duty from equity	$32,000
Investment loan required	$600,000
Investment LVR	80%

Your equity covers the deposit and costs ($182,000), and the lender funds the remaining $600,000 on the investment property. You now have two loans: the increased home loan and the investment property loan.

What lenders assess beyond the equity

Having usable equity is only one condition. Lenders also assess:

Serviceability: Can you afford both loans? Lenders use a "stress test" rate (typically 2–3% above the actual rate) to assess whether your income can cover all debt repayments. Many property investors find their borrowing capacity, not their equity, is the binding constraint.

Income and employment: Stable PAYG employment or documented self-employment income. Investment property rental income is typically included at 70–80% of assessed rent (to allow for vacancies and expenses).

Existing debt: Credit cards, HECS debt, car loans, and other mortgages all reduce assessed serviceability. Many investors reduce credit limits before applying.

Lender valuation: The lender does their own independent valuation of your property. If their valuation is lower than your estimate, your usable equity shrinks. On a property you think is worth $900,000 but the lender values at $830,000, usable equity drops from $300,000 to $244,000.

LMI: when going above 80% makes sense

Lenders Mortgage Insurance (LMI) is an insurance policy protecting the lender (not you) if you default. It's charged when your LVR exceeds 80% and can cost $10,000–$40,000 or more depending on loan size.

For investment property purchases, most experienced investors avoid LMI by staying at 80% LVR. The LMI cost is not tax deductible in the year it's paid — it must be amortised over five years — and it adds significantly to the cost of the transaction.

That said, if a specific investment opportunity requires moving above 80% to get into the market at the right time, the LMI cost may be acceptable depending on the expected capital growth.

Frequently asked questions

What is usable equity in Australia?

Usable equity is the amount of your home's equity a lender will allow you to access while keeping your loan-to-value ratio (LVR) at or below 80%. It's calculated as 80% of your property's current market value minus your outstanding loan balance. It's different from total equity — if your home is worth $900,000 and you owe $420,000, your total equity is $480,000 but your usable equity is only $300,000.

How much equity do I need to buy an investment property?

You typically need enough usable equity to cover a 20% deposit on the investment property plus purchase costs (stamp duty, legal fees — roughly 3–5% of the property value). For a $700,000 investment property, you'd need around $140,000 (20%) plus $25,000–$35,000 in costs — approximately $165,000–$175,000 in usable equity.

Can I use equity from an investment property (not my home)?

Yes — lenders can take equity from any property you own that has sufficient value. Investment property equity works the same way: (property value × 80%) minus the loan. Note that if you use your investment property as security, the lender has a charge over that property as well as the new one.

Does accessing equity affect my existing mortgage repayments?

Yes — when you increase your home loan to access equity, the monthly repayment increases. If you increase your mortgage by $182,000 at 6.5% over 25 years, your repayment increases by approximately $1,280/month. This is before the investment property loan repayments, which are partially offset by rental income.

Is the interest on an equity loan for an investment property tax deductible?

The deductibility follows the purpose of the funds. If you use the equity loan specifically to fund the deposit on an investment property, the interest on that portion is deductible as an investment expense. If you use equity for personal purposes, the interest is not deductible. Keep meticulous records of how equity funds are used to substantiate deductibility.

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This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered mortgage broker or licensed financial adviser before acting on this information.