Your home equity can fund an investment deposit, but how you structure the loan matters more than how much you release. Equity is only one part of the picture. Lender serviceability rules, loan purpose and tax treatment all shape the result.
For Grange homeowners, the decision is rarely whether to use equity. It is how to use it without creating problems that surface at tax time or at the next loan application. These are the five mistakes worth avoiding.
Mistake 1: Treating Usable Equity as Borrowing Power
Usable equity is the gap between what your lender will lend against your home and what you owe. Borrowing power is a separate test of whether your income can support the debt.
Lenders generally require Lenders Mortgage Insurance (LMI) once total borrowing goes above 80 per cent of the property's value. That 80 per cent line is lender policy and not a legal limit. Each lender sets its own caps, so the same home can release different amounts at different lenders.
Authorised deposit-taking institutions must also assess new borrowers at an interest rate at least 3.0 percentage points above the loan's actual rate. A large equity release can therefore be approved on paper and still fail on serviceability. Check your numbers with our borrowing capacity tool before you commit to a purchase.
Mistake 2: Mixing Investment and Private Borrowing
The tax deduction on loan interest follows how the borrowed money is used, not the property that secures the loan. Interest on funds used to buy a rental property is generally deductible. Interest on funds used for private purposes is not. Please confirm how this applies to you with your accountant.
As an example, consider a Grange homeowner who releases $200,000 from their home to fund a deposit and purchase costs on a rental. The lender adds the $200,000 to the existing home loan account. Months later, the owner redraws $20,000 from that same account for renovations. The account now carries both investment and private debt, and the interest has to be apportioned between the two uses. The records are hard to untangle, and the deductible share is harder to defend.
The fix is to take the $200,000 as its own loan split, used only for the investment purchase. The private redraw then sits on a separate split. Under ATO guidance on borrowed funds, each drawdown is looked at by its use. A clean split lets the accountant claim the interest on the investment portion with clear records behind it.
The trade-off is some extra administration. You may also have to manage more than one repayment, and some lenders attach fees or features to splits. Your broker can compare these across lenders.
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Does Interest-Only Increase How Much You Can Borrow?
No. For an interest-only loan, lenders assess your ability to repay principal and interest over the remaining term after the interest-only period ends. A 30-year loan with five years interest-only is assessed over 25 years. Borrowing capacity is therefore lower than for an equivalent principal and interest loan.
The real value of interest-only is cash flow in the early years. These figures use an illustrative rate of 6.75% p.a. and are not a quote. On $200,000, interest-only repayments are about $1,125 a month. Principal and interest over 30 years is about $1,297 a month. If the loan switches to principal and interest after five years, repayments over the remaining 25 years rise to about $1,382 a month.
The risk is that you pay less now and more later, and the balance has not fallen in the meantime. Use our mortgage repayment calculator to test your own loan amount and term.
Mistake 3: Relying on Negative Gearing Without Checking the New Rules
Negative gearing rules now depend on when you buy and what you buy. Do not assume a rental loss will reduce your salary tax. Confirm the rules with your accountant before you sign a contract.
Losses on residential investments held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income. Losses on eligible new builds acquired after that time can also be deducted against all income. For established residential properties acquired after that time, net rental losses from the 2027-28 income year can only be used against residential property income. Unused losses carry forward.
Interest is still deductible under the new rules. What has changed is how a net loss can be used. If you plan to buy an established property now, your finances should work without relying on a salary offset.
How Do Lenders Count Rental Income on a New Purchase?
Lenders usually count only part of the expected rent. APRA's guidance says prudent policies apply a haircut of at least 20 per cent, so no more than 80 per cent of expected rent is counted.
That haircut allows for periods without a tenant. It does not cover management fees, repairs or other holding costs, which you still pay. Lenders also tend to place less weight on a rental appraisal than on actual rent received. Whether a lender accepts an appraisal for a new purchase depends on its own policy.
Mistake 4: Ignoring Stamp Duty and Purchase Costs in the Equity Amount
The equity you release has to cover more than the deposit. Stamp duty, legal fees and any LMI sit on top of the purchase price. If you release only enough for the deposit, you may have to find the rest from savings.
Work out the full cost before you apply. Our stamp duty calculator gives you the duty figure for Queensland so the equity amount reflects the true cost.
Mistake 5: Choosing a Lender for the Purchase Alone
The lender that suits a single purchase may not suit your plans for further properties. Equity release, a refinance and a new loan can be structured in different ways, and your first structure affects what you can do later.
A broker can compare investment loans across banks and lenders, and can review whether a refinance of your existing home loan makes sense first. Refinancing can involve discharge, valuation and other fees, so those costs need to be weighed against any benefit.
For an owner in Grange, the property sits within Brisbane City Council, and the right structure depends on your income, your existing debt and your plans for the next purchase.
To work out how much equity you can release and how to structure it, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I use the equity in my home to buy an investment property?
Yes, many lenders allow you to borrow against your home's equity for a deposit and costs. Each lender sets its own limits, and you must still pass a serviceability assessment.
Is the interest on an equity release loan tax deductible?
Interest is generally deductible when the borrowed funds are used to buy a rental property, but not when they are used for private purposes. The deduction depends on how the money is used, so confirm your position with your accountant.
Does an interest-only loan increase my borrowing capacity?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period. This usually gives a lower maximum loan size than a principal and interest loan.
Do I need LMI if I borrow against my home equity?
LMI is generally required when total borrowing goes above 80 per cent of the property's value. Approval and costs depend on the lender and the insurer.
