Many Canterbury homeowners have built substantial equity in their homes but assume they need cash savings to purchase an investment property.
You can use your home equity to buy an investment property without depleting your savings account. Lenders will allow you to borrow against the value of your existing home to fund a deposit and purchase costs for a rental property, provided you meet their loan to value ratio (LVR) requirements and demonstrate sufficient income to service both loans.
How Equity Release Works for Investment Purchases
Equity is the difference between what your property is worth and what you owe on it. When you leverage equity from your Canterbury home, the lender increases your existing home loan or creates a separate loan secured against that property. The released funds then become your deposit for the investment property purchase.
Consider a Canterbury homeowner whose property is valued at $1.2 million with a remaining mortgage of $400,000. They have $800,000 in equity. Most lenders will allow you to access equity up to 80% of your home's value without paying Lenders Mortgage Insurance (LMI), which means this owner could potentially access $560,000 ($1.2 million x 80% minus $400,000 owed). That's more than enough for a deposit on an investment property, stamp duty, and associated purchase costs.
The property investor loan structure typically involves refinancing your existing home loan to release equity, then using those funds as a deposit for your second property. Your investment property then has its own separate loan with different features suited to rental income.
Interest Rate Structures That Support Your Investment Strategy
Most property investors choose interest only investment loan structures for their rental properties because the repayments are lower and all interest charges become tax deductible. Meanwhile, your owner-occupied Canterbury home loan continues as principal and interest, building equity while you claim tax benefits on the investment property.
A variable interest rate on your investment property loan gives you flexibility to make extra repayments when rental income is strong or vacancy rates are low. Canterbury's proximity to quality schools and the Maling Road shopping precinct means rental demand typically remains consistent, with fewer extended vacancy periods than outer suburbs.
Ready to get started?
Book a chat with a Mortgage Broker at Laneer Finance Group today.
What Canterbury Property Values Mean for Your Borrowing Capacity
Canterbury's median house price sits well above Melbourne's average, which means homeowners in the area often have significant equity available even after relatively modest price growth. Properties near Canterbury Gardens or within the Canterbury Primary School zone hold value particularly well.
Your borrowing capacity for the investment loan depends on your current income, existing debts, and the expected rental income from your proposed investment property. Lenders will assess whether you can service both your existing home loan and the new investment property finance. They typically include 80% of the projected rental income in their serviceability calculations.
In a scenario like this: a Canterbury couple earning a combined $180,000 with a $400,000 mortgage on their $1.2 million home want to purchase a $650,000 investment property in Preston. The lender assesses their application based on their salary, the existing mortgage repayments, and 80% of the expected $550 weekly rent ($430 per week counted toward income). If their debt-to-income ratio remains within the lender's criteria and they can access $130,000 in equity for the deposit, they can proceed with both loans.
Tax Benefits and Claimable Expenses That Improve Returns
When you use equity to purchase an investment property, the interest on both loans may be tax deductible under certain conditions. Interest on the portion of your home loan used to purchase the investment property becomes deductible, even though it's secured against your Canterbury home. The interest on your investment property loan is also fully deductible.
You can maximise tax deductions by keeping loans for investment purposes separate from your owner-occupied debt. Other claimable expenses include property management fees, council rates, building insurance, repairs and maintenance, and depreciation on the building and fixtures. If your rental property is part of a development with a body corporate, those fees are also deductible.
Negative gearing benefits apply when your investment property expenses exceed the rental income. The loss offsets your taxable income, reducing your overall tax burden. Many Canterbury families use this strategy to build wealth through property while accessing immediate tax relief.
Building a Property Portfolio from Your Canterbury Base
Once you've successfully used equity to purchase your first investment property, that property begins building its own equity. Within several years, depending on market conditions and loan repayments, you may have enough combined equity across both properties to fund a third purchase. Portfolio growth through equity leverage is how many Canterbury families achieve financial freedom.
Your property investment strategy should account for ongoing costs including potential rate increases, vacancy periods, and maintenance. Canterbury homeowners often target investment properties in established suburbs with consistent rental demand rather than chasing higher yields in less stable markets. Passive income from rental properties provides security, particularly when structured across multiple properties in different locations.
When considering whether to refinance your Canterbury home to release equity, speak with someone who can model the full financial picture including tax implications, rental yield projections, and how both loans will perform under different interest rate scenarios.
If you're a Canterbury homeowner wondering whether you have enough equity to purchase an investment property and how to structure the loans for the most beneficial outcome, 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, you can access the equity in your existing home to fund the deposit and purchase costs for an investment property. Most lenders allow you to borrow up to 80% of your home's value without paying Lenders Mortgage Insurance, meaning the difference between that amount and your current mortgage can be released as equity.
How much equity do I need to buy an investment property?
You typically need enough equity to cover at least a 20% deposit plus stamp duty and other purchase costs on the investment property. For a $650,000 investment property, you would need approximately $150,000 in accessible equity to avoid Lenders Mortgage Insurance and cover associated costs.
Is the interest on my home loan tax deductible if I use equity for an investment property?
Interest on the portion of your home loan used to purchase an investment property is generally tax deductible, even though it's secured against your owner-occupied home. The interest on the actual investment property loan is also fully deductible. Speak with a tax advisor about your specific circumstances.
Should I use an interest only loan for my investment property?
Most property investors choose interest only structures for investment properties because the repayments are lower and all interest is tax deductible. This approach frees up cash flow while you continue building equity in your owner-occupied home through principal and interest repayments.
How do lenders assess my borrowing capacity when I already have a home loan?
Lenders assess whether you can service both your existing home loan and the new investment property loan based on your income, current debts, and expected rental income. They typically include 80% of the projected rental income when calculating your ability to meet repayments on both properties.
