Understanding the basics of using home equity

You can use equity in your current home to fund the deposit and costs on an investment property.

The mechanics involve accessing a portion of your property's value without selling it. If your home is worth $1.2 million and you owe $400,000, you have $800,000 in equity. Most lenders will allow you to borrow against up to 80% of the property's value, which means you could access up to $560,000 in usable equity after accounting for your existing debt. That amount can cover the deposit, stamp duty, and settlement costs on a second property while keeping your current mortgage in place.

How equity release works for investment purchases

Equity release involves increasing the loan on your existing property to free up cash for a new purchase. The lender reassesses your home's current value and your borrowing capacity, then advances additional funds against that valuation. The released equity becomes your deposit for the investment property, which is then secured by a separate loan against the new asset.

Consider a litigation lawyer who owns a home valued at $950,000 with a remaining loan balance of $320,000. The lender agrees to lend up to 80% of the property's value, which equals $760,000. Subtracting the existing debt leaves $440,000 in accessible equity. The lawyer uses $180,000 of that equity to cover a 20% deposit and associated costs on an investment property. The lender structures this as two separate loans: one against the principal residence and one against the investment property. Both loans remain active, but the investment loan can be set to interest only to improve cashflow during the holding period.

Calculating usable equity and loan to value ratio

Usable equity is not the same as total equity. Lenders apply a maximum loan to value ratio (LVR) to determine how much you can borrow against your home. At 80% LVR, the calculation is straightforward: multiply your property's value by 0.8, then subtract your current loan balance. The result is the amount available for withdrawal.

If your property is worth $1.1 million and your loan sits at $500,000, the calculation is $880,000 minus $500,000, leaving $380,000 in usable equity. If you need $150,000 for a deposit and another $30,000 for stamp duty and legals, you would draw $180,000 from that pool. The remaining $200,000 stays untouched as a buffer or for future use. Going beyond 80% LVR is possible, but it triggers Lenders Mortgage Insurance (LMI). Litigation lawyers with access to LMI waivers can sometimes borrow up to 90% without incurring that cost, which materially increases the equity available for investment purposes.

Structuring loans to preserve tax deductions

Debt against your owner-occupied home is not tax deductible. Debt used to acquire an income-producing asset is. When you release equity from your home to buy an investment property, the structure of your loans determines which interest payments you can claim.

The portion of debt tied to your home remains non-deductible. The new loan secured against the investment property is fully deductible, provided the funds are used exclusively for the purchase. If you release $200,000 from your home equity and use it to fund an investment deposit, that $200,000 should be quarantined in a separate loan account linked to the investment property, not blended with your existing home loan. This separation ensures the interest on the investment portion qualifies as a claimable expense. Mixing the two creates an apportionment problem that complicates your tax return and may limit the deductions you can claim. Lawyers familiar with debt recycling will recognise the principle: keep investment debt separate from personal debt at all times.

Investment loan features that suit litigation practice

Litigation lawyers often experience variable income depending on case settlements and trial schedules. Investment loan products that offer offset accounts, redraw facilities, and flexible repayment structures provide breathing room during lean months.

An offset account linked to the investment loan allows you to park any surplus income and reduce the interest charged without formally paying down the principal. If a case settles and you receive a performance bonus, that amount can sit in the offset and reduce your interest bill until the next outgoing is due. Redraw facilities let you make extra repayments and withdraw them later if needed, though some lenders restrict redraw on investment loans or charge fees for access. Interest only repayments reduce the monthly outgoing, which can be useful if rental income does not fully cover the loan and you want to limit the shortfall. The trade-off is that you do not reduce the principal, so the loan balance remains unchanged over the interest only period.

How recent budget changes affect equity-funded purchases

If you bought an established investment property after 12 May 2026, negative gearing and capital gains tax treatment will change from 1 July 2027. Losses from the property will only be deductible against rental income or capital gains from residential property, not against your litigation salary. The 50% CGT discount will be replaced with cost base indexation and a minimum 30% tax on gains.

These changes apply only to established residential properties purchased after Budget night. If you bought before 13 May 2026, your existing arrangements remain in place. New builds purchased after that date retain the 50% CGT discount and full negative gearing deductions, which shifts the incentive toward off-the-plan or newly constructed properties. If you are releasing equity now to fund an investment purchase, the timing of settlement and the type of property you choose will determine which tax rules apply. Speak to your accountant before proceeding, particularly if you are considering an established property in a high-growth area where the CGT changes could materially affect your long-term return.

Borrowing capacity when servicing two loans

Lenders assess your ability to service both your existing home loan and the new investment loan simultaneously. Your income, existing debts, living expenses, and the rental income from the investment property all factor into the calculation.

Rental income is typically assessed at 80% of the actual rent to account for vacancy and maintenance costs. If the property generates $600 per week, the lender will credit $480 per week to your income when calculating serviceability. Your litigation salary, any partnership distributions, and other verifiable income sources are added to that figure. Existing liabilities, including credit cards, personal loans, and HECS debt, are deducted. The lender then applies a buffer to the interest rate, usually 2% to 3% above the actual rate, to test whether you can still afford the repayments if rates rise. If you are using equity release to fund the deposit, the increased debt on your home loan will reduce your borrowing capacity for the investment loan, so the two calculations are interdependent.

When a split loan structure makes sense

Splitting your investment loan between fixed and variable rate portions can provide certainty on part of the repayment while retaining flexibility on the rest. A fixed rate locks in the interest cost for a set period, which can be useful if you expect rates to rise or if you want predictable cashflow. A variable rate allows extra repayments, access to offset accounts, and the ability to refinance without break costs.

A typical split might be 50% fixed and 50% variable, though the proportions depend on your risk tolerance and cashflow needs. The fixed portion provides a floor on your repayment, while the variable portion lets you take advantage of rate cuts or make lump sum reductions if a case settles favourably. Some lawyers prefer a higher fixed portion during the first few years of ownership, then switch to variable once the property is positively geared or when they have built a larger equity buffer. The main downside is that fixed rate loans often prohibit extra repayments beyond a small annual limit and charge break costs if you exit early. If you plan to sell or refinance within two to three years, a variable rate or a shorter fixed term may be more appropriate.

Accessing investment loan options across multiple lenders

Different lenders offer different rates, LVR limits, offset features, and serviceability calculators. Some lenders are more flexible with professional income, while others impose stricter debt-to-income ratios or restrict lending to certain property types. When you are releasing equity to fund an investment purchase, the lender on your existing home loan may not be the most suitable lender for the new investment loan.

Some lenders provide rate discounts for lawyers, while others waive LMI at higher LVRs or offer better rental income treatment. Accessing investment loan options from banks and lenders across Australia increases the likelihood that you will find a product suited to your income structure and the property you are purchasing. A broker can compare multiple lenders in a single application process, which reduces the time spent gathering documentation and allows you to lock in a rate while you finalise the purchase contract. If you already have a relationship with a lender for your home loan, you may still find that a different lender offers better terms for the investment component, particularly if the property is in a regional area or is a unit in a building with high owner-occupier restrictions.

Call one of our team or book an appointment at a time that works for you to discuss how equity in your current property can be structured to fund your next investment purchase.

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