Using Home Equity to Invest — Australia Guide (2026)
Home equity is one of the most common sources of capital for Australian property investors. Accessing the equity in your owner-occupied home to fund an investment property deposit — or other investments — is a well-established strategy. But it adds debt, increases risk, and has important tax considerations.
How Using Equity to Invest Works
- You build equity in your owner-occupied property (through repayments and/or capital growth)
- You access that equity by increasing your loan (refinancing top-up or separate equity loan)
- The released funds serve as a deposit or down payment on an investment
- You now have two loans: your home loan (possibly increased) and an investment loan
Example:
- Owner-occupied home value: $1,000,000
- Outstanding home loan: $450,000
- Usable equity (to 80% LVR): $800,000 − $450,000 = $350,000
- Plan: Use $200,000 as a deposit on a $700,000 investment property
- New investment loan: $500,000 (remaining 72% LVR on investment property)
The Tax Advantage: Deductible Interest
When you borrow to purchase income-producing investments (an investment property, shares, or managed funds), the interest on that borrowing is generally tax deductible — you can claim it as a deduction against your assessable income.
Key tax points:
| Loan | Purpose | Interest deductible? |
|---|---|---|
| Owner-occupied home loan | Personal (live in it) | No |
| Equity release used for investment property | Investment | Generally yes |
| Equity release used for renovation of own home | Personal | No |
| Equity release used for shares | Investment | Generally yes (verify with tax agent) |
This means equity released from your home and used for investment can reduce your taxable income — making the effective after-tax cost of the investment loan lower.
Tax deductibility depends on the specific purpose and structure — speak with a registered tax agent.
Keeping Loans Separate (Critical)
A fundamental principle of investment tax strategy is keeping investment loans completely separate from personal loans. If you mix personal and investment purposes in the same loan, the ATO may limit your deductions.
Correct structure:
- Home loan: $450,000 (owner-occupied, non-deductible)
- New equity loan: $200,000 (used specifically as investment deposit — deductible)
- Investment property loan: $500,000 (investment — deductible)
Incorrect structure:
- One combined loan of $650,000 (mixed purpose — proportion of deductibility disputed)
Work with a mortgage broker and registered tax agent to structure this correctly from the outset.
Using Equity for an Investment Property
The most common use of equity. The typical process:
- Get an updated valuation of your owner-occupied home
- Determine usable equity (to 80% LVR)
- Refinance or draw an equity loan to access deposit funds
- Use the deposit to purchase the investment property
- Take out a separate investment property loan for the balance
Important: The investment property must also be serviceable — lenders will assess rental income potential (typically at a discount, e.g., 80% of rent) and your total debt serviceability.
Using Equity to Invest in Shares
You can also use released equity to purchase ASX shares or ETFs — and the interest on the equity loan used to purchase shares is generally deductible.
Considerations:
- Shares are more volatile than property — a correction could simultaneously reduce your share portfolio value and equity (if property values also fall)
- Margin calls don’t apply to home equity loans (unlike margin loans), but the debt still exists
- Dividend imputation (franking credits) can reduce the effective tax cost further
Using borrowed money to invest in shares (leverage) increases both potential returns and potential losses. This involves significant risk.
Negative Gearing — A Common Strategy
If investment property rental income is less than the interest and expenses (including deductible interest on equity loan), the loss is negatively geared — it can be offset against other income, reducing your taxable income.
Example:
- Investment property rental income: $35,000/year
- Investment loan interest (including equity loan interest): $42,000/year
- Other expenses: $6,000/year
- Net loss: $13,000/year
- Tax benefit at 37% marginal rate: ~$4,810 reduction in tax
However, negative gearing relies on capital growth to produce overall profit — rental losses alone do not create wealth.
Negative gearing strategy should be assessed holistically — speak with a registered tax agent and financial adviser.
Risks of Using Equity to Invest
| Risk | Explanation |
|---|---|
| Property market downturn | If property values fall, you may lose equity without reducing debt |
| Rental vacancy | If the investment property is vacant, you still pay the loan — serviced from your own income |
| Interest rate rises | Multiple loans mean higher exposure to rate increases |
| Negative equity | If both properties fall in value, you could owe more than they are worth |
| Liquidity | Property is illiquid — you cannot sell part of a property quickly if you need cash |
Leveraging equity is a genuine wealth-building strategy for many Australians — but it increases financial exposure. Ensure you can service all loans even if rental income stops and interest rates rise.
Frequently Asked Questions
Is using equity the same as a deposit?
Yes — from the selling agent’s and lender’s perspective, the equity funds serve the same purpose as a cash deposit. You still need to demonstrate serviceability on both loans.
Can I use equity to buy shares in a SMSF?
Self-managed super funds have specific borrowing rules (Limited Recourse Borrowing Arrangements). You cannot simply transfer equity from a personal loan into an SMSF. Speak with an SMSF specialist.
Does using equity for investment affect my home loan rate?
It depends on the structure. If you top up your existing home loan (changing its purpose), it may become a mixed-purpose loan. Most brokers recommend a separate equity loan to keep the purposes clean.
Related Guides
- What Is Home Equity?
- Accessing Home Equity — How to Use It
- Should I Pay Off My Mortgage or Invest?
- Home Equity Calculator
- Mortgage Repayment Hub
This article provides general information about using home equity to invest in Australia. Tax deductibility of interest on equity loans is complex and depends on the specific use of funds. This is not financial advice. Leveraged investing involves significant risk — you could lose more than you invest. Speak with a licensed financial adviser and registered tax agent before using equity to invest. Find advisers through MoneySmart.