Unlock the Secrets to Using Home Equity for a Second Property

Your home's equity can become the deposit for a second property without you needing to sell or save for years. If you've owned property in Perth for a while, particularly through the growth periods we've seen in many suburbs, you might be sitting on more usable equity than you realise.

The decision you're making right now is whether to keep that equity locked away or put it to work buying an investment property or upgrading to a larger home while keeping your current one as a rental. Refinancing to access equity means increasing your loan amount against your existing property, then using those funds as a deposit elsewhere. The key is understanding how much equity you can actually access, what lenders will allow, and how the numbers stack up when you're servicing two loans instead of one.

How Much Equity Can You Actually Access?

Most lenders will let you borrow up to 80% of your property's current value without requiring lenders mortgage insurance, which means your usable equity sits at around 80% of the property value minus what you still owe. Consider a scenario where your home is now valued at $700,000 and your remaining loan balance is $350,000. At 80% LVR, you could borrow up to $560,000, giving you access to around $210,000 in equity. That $210,000 can cover a deposit on a second property, leaving enough for stamp duty and other purchase costs.

We regularly see Perth property owners surprised by how much their equity position has shifted, particularly in suburbs like Baldivis, Joondalup, and Canning Vale where values have climbed steadily. The refinance process involves getting a current valuation, which some lenders do through desktop assessments and others require a physical inspection. If your valuation comes in lower than expected, your available equity shrinks, so it's worth understanding what comparable sales look like in your area before you commit to a purchase.

Serviceability Matters More Than Equity

You might have $200,000 in equity, but lenders won't release it unless you can service the increased loan on your existing property plus the new loan on the second property. Serviceability calculations factor in your income, existing debts, living expenses, and the rental income you'll earn if you're buying an investment property. Lenders typically assess rental income at 80%, meaning if the investment property will rent for $500 per week, they'll only count $400 in their calculations.

In our experience, this is where many buyers hit a wall. The equity is there, the deposit is sorted, but the income doesn't stretch far enough to support both loans. If you're planning to keep living in your current home and rent out the second property, your lender will want to see that your income can cover both mortgages, rates, insurance, and maintenance on top of your usual living costs. One way around tight serviceability is to move into the new property and rent out your existing home, particularly if your current property sits in a high-demand rental area. That rental income then supports the original loan, and your income services the new one. For more on how lenders assess your borrowing capacity, check out our page on borrowing capacity.

The Refinance Process for Equity Release

Refinancing to release equity follows the same approval process as any home loan application. You'll need to provide income documentation, details of your existing debts, and information about the property you're planning to purchase. The lender arranges a valuation on your current property, assesses your serviceability, and if everything stacks up, approves the increased loan amount. Settlement usually takes four to six weeks, and the funds are released either directly to you or to your solicitor ahead of the second property's settlement.

If you're refinancing with your current lender, they might offer a faster process since they already hold your loan, but don't assume they'll give you the sharpest rate or the most flexible structure. Shopping around through a broker often uncovers lenders with lower rates, offset accounts, or split loan options that reduce your interest costs over time. The refinance also gives you a chance to reassess your loan structure. Many buyers release equity on a split loan, keeping part of it fixed for stability and part variable for flexibility. You can read more about home loan refinancing and how it works in different scenarios.

What Happens If Property Values Drop?

If property values fall after you refinance, your loan to value ratio increases, but that only becomes an issue if you need to refinance again or sell. As long as you can keep servicing both loans, short-term value fluctuations don't trigger any action from your lender. The risk sits with buyers who stretch their serviceability to the limit and then face an income drop, rate rise, or unexpected expense. If you can't make repayments, the lender can force a sale, and if values have dropped, you might end up in a position where the sale doesn't cover what you owe.

Perth's property market has seen both strong growth and flat periods over the past decade, so building a buffer into your borrowing is important. That might mean borrowing less equity than you're approved for, keeping an offset account with a few months of repayments saved, or ensuring your rental income projections are conservative. For buyers purchasing an investment property in outer suburbs like Banksia Grove or Rockingham, vacancy rates and rental demand should factor into your decision as much as purchase price.

Structuring the Loans for Tax and Flexibility

When you refinance to release equity for an investment property, how you structure the loans affects your tax position. The portion of your loan used to purchase the investment property generates tax-deductible interest, while the portion used for your owner-occupied home does not. Most accountants recommend splitting your loans so the investment portion sits separately, making it clear which interest relates to which property.

As an example, you refinance your owner-occupied property and increase the loan by $150,000 to use as a deposit on an investment property. Your original $350,000 loan remains non-deductible, but the additional $150,000 becomes deductible because it's directly tied to the investment purchase. If you dump all the funds into one loan and then start making extra repayments, you dilute the deductible portion and create a mess for your accountant. Keeping the loans separate from the start avoids that problem. If you're also considering investing through a self-managed super fund, the loan structure changes again, and you can explore more on our SMSF loans page.

Using Equity for an Upgrade Instead of an Investment

Not everyone releasing equity is buying an investment property. Some Perth buyers want to upgrade to a larger home but don't want to sell their current property, particularly if they bought in a suburb that's become tightly held or has strong rental demand. In that scenario, you refinance your existing home to release enough equity for a deposit on the upgrade, move into the new property, and rent out the original.

This approach works particularly well in suburbs like Morley, Bayswater, and Inglewood, where established homes close to the city attract consistent rental interest. The rental income offsets most or all of the loan repayments on your original property, and you're building equity in two properties instead of one. The downside is that you lose the capital gains tax exemption on your original home once it becomes an investment, so if you sell it later, you'll pay tax on the growth that occurred after it stopped being your primary residence. Your accountant can walk you through the numbers, but the long-term wealth-building potential often outweighs the tax cost.

Call one of our team or book an appointment at a time that works for you. We'll walk through your equity position, run the serviceability numbers, and help you structure the refinance so you're set up to move forward with confidence.

Frequently Asked Questions