A client came to me recently having owned an investment property for six years. The value had grown from $580,000 to $820,000. She was still carrying the original loan. She knew she had equity. What she did not know was what she could actually do with it — and what the risks were of doing the wrong thing.
Equity is the most underused tool in most property investors’ portfolios. But it is also the most misunderstood. People either ignore it entirely or treat it like a windfall. Neither approach serves them well.
Here is how it actually works.
What Is Equity?
Equity is the difference between your property’s current market value and the balance of your loan against it.
If your property is worth $820,000 and your remaining loan is $480,000, your total equity is $340,000.
That $340,000 is your ownership stake — the portion of the property that is yours, not the bank’s. It grows in two ways: through capital growth (the property’s value rises) and through loan repayments (the debt reduces).
What Is “Usable” Equity?
Not all equity can be accessed. Most lenders will only allow you to borrow against a property up to 80% of its current value without requiring Lenders Mortgage Insurance. The usable equity is therefore: 80% of property value minus your existing loan balance.
Worked example — Usable Equity Calculation
Property current value: $820,000
80% of current value: $656,000
Existing loan balance: $480,000
Usable equity: $656,000 – $480,000 = $176,000
That $176,000 is available to borrow against — subject to serviceability — without triggering LMI.
Borrowing beyond 80% LVR is possible but incurs LMI costs, which can be significant.
“Equity is not free money. It is borrowed money secured against growth you have not locked in yet. The discipline of how you deploy it is what separates a growing portfolio from an overextended one.”
The investor who treated equity like profit
I once spoke with an investor whose property had grown substantially. He had worked hard, been patient, and now had a significant amount of equity sitting in the loan. He came to me wanting to release it.
He had plans. A new car. An overseas trip. Some upgrades to the family home.
We had a frank conversation. I explained that releasing equity for lifestyle spending is not a problem in itself — people make that choice — but that the debt does not disappear when the holiday ends. A few years later, the loan remained. The car had depreciated. The holiday was a memory.
That is the danger with equity. It feels like money you have earned. It is actually money you are borrowing against an asset you have not yet sold.
The investors who build sustainable portfolios treat equity as a tool, not a reward.
How Can You Access It?
There are three main mechanisms for releasing equity from an investment property.
- Refinancing
You apply for a new loan at the higher value of the property. The new loan pays out the old one, and the surplus funds are released. This is the most flexible option and allows you to renegotiate your interest rate at the same time. It requires a new credit assessment.
- Loan top-up
Some lenders allow you to increase your existing loan rather than refinance. This is simpler but may not be available at your lender depending on policy changes since your original loan was written.
- Line of credit / equity access facility
A revolving credit facility secured against the equity, which you draw down as needed. Useful for staged renovation spending or when timing of the next purchase is uncertain. Requires discipline — it is easy to spend available credit on non-investment purposes, which changes the tax deductibility.
What Can You Use It For?
Equity released from an investment property can be used for a range of purposes. The purpose matters — both for your strategy and for tax.
| Purpose | Tax treatment | Notes |
| Deposit on next investment property | Interest deductible | Most common portfolio-building use |
| Renovations to investment property | Interest deductible | Must relate to the income-producing property |
| Paying down your home loan (PPOR) | Interest on equity NOT deductible | Strategically valid; watch the accounting |
| Business investment / shares | Generally deductible | Get specific tax advice for your structure |
| Lifestyle spending, holidays, car | Interest NOT deductible | Increases debt with no investment offset |
Note: Tax deductibility depends on the purpose of the borrowing, not the security used. Always seek advice from a qualified accountant or tax adviser for your specific situation.
“The most important rule of equity release: know whether the purpose is investment or lifestyle. The tax treatment is different. The risk profile is different. So are the long-term outcomes.”
Three things to confirm before accessing equity
- Serviceability: Can you demonstrate that your income supports both the existing loan and the additional borrowing? The equity may exist but you may not qualify to draw it without proof of income that services the total.
- Purpose: Is the equity being used for investment or lifestyle? This determines tax treatment and should be clearly documented.
- Structure: Are loans being cross-collateralised? If so, understand the restrictions this places on future decisions before signing.
The Thing Most People Don’t Hear About: Cross-Collateralisation
Cross-collateralisation is when a lender holds multiple properties as security for multiple loans — linking them together rather than treating each as a standalone security.
It sounds convenient. It creates problems.
When properties are cross-collateralised, selling or refinancing one requires lender approval for all of them. If you want to sell one property to fund something else, the lender may restrict or prevent it if doing so would breach their security requirements across the portfolio. You lose control of your own assets.
The better structure is standalone loans: each property secures only its own loan. This is worth discussing explicitly with your broker before drawing down equity, especially if your lender is suggesting linking securities.
Using Equity to Pay Down Your Home Loan
Think of it this way: your home loan is generally the most expensive debt you own, because the interest is not tax-deductible. Every dollar of home loan interest costs you the full rate with no offset. That is why many investors prioritise reducing it — and why this use of equity can be genuinely strategic, not just convenient.
One of the most common uses of investment equity is reducing or eliminating the mortgage on your principal place of residence (PPOR). Because interest on your home loan is not tax-deductible (unlike investment loan interest), paying it down faster has a clear financial benefit.
The mechanics: you release equity from the investment property and use it to reduce your PPOR loan balance. The investment loan increases (and the interest on that portion remains deductible, since the funds came from the investment property). Your home loan decreases faster than repayments alone would achieve.
This strategy works best when the investment property is positively geared or neutrally geared — i.e., rental income covers most or all of the investment loan costs. If the investment is deeply negatively geared, releasing equity increases the negative cashflow position before reducing the PPOR.
The question I always ask first
Just because you can access the equity does not automatically mean you should.
The question is not: “How much can I borrow?”
The question is: “What is this borrowing going to achieve?”
Answering that clearly — before you speak to a lender — is usually where the better decisions get made.
Who this suits
✓ Investors whose property has grown significantly and who are not yet using the equity strategically.
✓ Portfolio builders ready to acquire a second property using equity as the deposit.
✓ PPOR owners who have investment equity and want to reduce non-deductible home loan debt faster.
✓ Renovators with a clear investment ROI calculation on the spend.
Worth thinking carefully about if…
✕ You are treating equity as “found money” — it is borrowed money with an interest cost attached.
✕ You have not confirmed serviceability before deciding what to buy next.
✕ Your lender is suggesting cross-collateralisation without explaining what that means for your flexibility.
✕ The purpose is lifestyle spending rather than investment — you will increase debt without building an asset to offset it.
Related reading
Is Property Investment Still Worth It in 2026?
Off-the-Plan Investing: The Honest Guide
What Is a Mortgage Broker — and Why Even Bother?
The First-Time Investor Mistakes Nobody Actually Warns You About
Property Investing in Australia: 10 Real-World Rules
Frequently asked questions
How do I calculate the usable equity in my investment property?
Usable equity = (80% of current property value) minus your outstanding loan balance. Example: property worth $820,000, loan balance $480,000. 80% of $820,000 = $656,000. Usable equity = $656,000 – $480,000 = $176,000. This is the amount available to borrow against without triggering Lenders Mortgage Insurance, subject to serviceability.
Can I use equity in my investment property to buy another property?
Yes. Usable equity can be released via refinancing or a loan top-up and used as the deposit for a subsequent property. The interest on equity used for investment purposes is generally tax-deductible. You must demonstrate serviceability for both loans. Speak to a mortgage broker about how your borrowing capacity is assessed across multiple properties.
What is the difference between equity and usable equity?
Total equity is property value minus loan balance. Usable equity is what you can actually borrow against — typically 80% of the property’s value minus the existing loan. Borrowing above 80% of the property’s value is possible but requires paying Lenders Mortgage Insurance, which can cost thousands to tens of thousands of dollars.
What is cross-collateralisation and should I avoid it?
Cross-collateralisation is when a lender holds multiple properties as security across multiple loans, linking them together. This limits your flexibility to sell or refinance one property independently. In most cases, it is better to structure each property with its own standalone loan. Discuss this with your mortgage broker before signing any equity release documentation.
Is the interest on equity I release tax-deductible?
It depends on the purpose. Interest on equity used for investment purposes (buying another investment property, renovating an investment property) is generally tax-deductible. Interest on equity used for lifestyle spending, personal debt, or reducing your home loan is not. The purpose of the borrowing — not the security — determines deductibility. Always get specific tax advice for your situation.
Sources & references
The following sources are relevant to the content covered in this article.
ATO: Rental Properties and Negative Gearing
ATO: Borrowing to Invest — Deductibility of Interest
ASIC MoneySmart: Property Investment
ASIC MoneySmart: Using Your Home’s Equity
Disclaimer
This article contains general information only and does not constitute financial, legal or tax advice. Please speak to a licensed financial advisor, solicitor or mortgage broker about your specific circumstances. Aimee Templeman is a licensed real estate agent however approaches property through the lens of learning and empowerment. She has decades of experience coaching and advising everyday Australians and executive decision makers. Book a conversation with Aimee at Contact.