How to access your home's equity to buy an investment property in Melbourne

Learn how Melbourne homeowners can leverage home equity to purchase investment property. Complete guide covering calculations, process, benefits and risks.

If you’ve owned your Melbourne home for several years, you’ve likely built substantial equity that could unlock your first investment property purchase. Rather than spending years saving a separate deposit, accessing home equity offers a faster pathway to enter the market. However, using equity to buy investment property requires careful planning and understanding of both the process and risks involved.

What home equity means and how much you can actually use

Before accessing your equity, you need to understand what lenders will actually allow you to use for investment property deposit purposes.

Home equity represents the portion of your property you own outright. It’s the difference between your property’s current market value and your outstanding mortgage balance. As you make repayments and your property potentially grows in value, your equity increases.

Lenders don’t allow access to all your equity. Banks typically cap lending at 80% of your property’s value, known as the Loan-to-Value Ratio or LVR. This means your usable equity is what’s available within this 80% threshold.

This distinction matters significantly when planning your investment property deposit. Lenders maintain the 80% threshold to protect against market fluctuations. Borrowing beyond this typically triggers Lenders Mortgage Insurance, which we’ll explore later.

Getting an accurate property valuation is your first step. While online estimates help, lenders conduct conservative formal valuations when you apply for finance. Attain Loans can provide preliminary assessments to understand your likely equity position before you commit to property searches.

Melbourne’s property market conditions for equity investors

Melbourne’s property market in 2025 presents interesting dynamics for investors who can access home equity from existing properties.

After softer conditions through 2024, Melbourne has posted consecutive months of price growth in early 2025. Current median dwelling values remain below the March 2022 peak, creating what analysts describe as inbuilt equity opportunities. The city offers substantially better affordability than Sydney, with median prices sitting at levels not seen in two decades.

The rental market tells a compelling story. Vacancy rates sit at historic lows between 1% and 2% in many suburbs, meaning strong tenant demand and reduced vacancy risk for new investors. Strong population growth from international migration, major infrastructure projects, and a diverse economy support long-term fundamentals.

This tight rental supply creates prospects for rental growth that helps offset financing costs when using equity to buy investment property.

Step 1 for accessing equity: obtain a current property valuation

Your journey starts with understanding your property’s current market value. While you can research comparable sales or request agent appraisals, lenders will conduct their own conservative formal valuation.

Lender valuations typically come in lower than market appraisals because banks want certainty they’re not over-lending based on optimistic assessments. Building plans around conservative figures prevents disappointment later in the application process.

Working with Attain Loans at this early stage helps you understand what lenders are likely to value your property at before formal applications. This preliminary assessment allows you to gauge your likely usable equity position and plan accordingly.

Your property’s location, condition, type, and recent comparable sales all influence the valuation. Properties in tightly held suburbs with limited recent sales might receive more conservative valuations due to lack of comparable evidence.

Step 2 for accessing equity: calculate your accessible equity

Once you have a realistic valuation, calculate your usable equity using the 80% LVR threshold.

Take your property’s valuation, multiply by 0.80, then subtract your current mortgage balance. The result is your usable equity that lenders will potentially allow you to access.

Property investors often use the Rule of Four to estimate maximum investment property purchase price. This guideline suggests your investment property price should be roughly four times your usable equity. This covers your 20% deposit, with the lender providing 80% finance, plus a buffer for stamp duty, legal fees, and building inspections.

However, having accessible equity doesn’t mean you should use it all. Maintaining buffers for unexpected costs, rental vacancies, or rate rises provides crucial safety margins. Stretching equity to absolute limits leaves no room for circumstances to change.

Your accessible equity calculation provides a starting point for investment property searches. It tells you the deposit amount you can potentially access and, by extension, the price range you might target.

Step 3 for accessing equity: assess your borrowing capacity

Accessing equity is one thing. Proving you can afford increased debt is another matter entirely. Lenders conduct thorough serviceability assessments examining multiple factors.

Banks look at your income from all sources including salary, investment returns, and other regular earnings. For the investment property, they’ll typically assess rental income at 70% to 80% of expected rent to account for vacancy periods and management costs.

On the expense side, lenders scrutinise existing commitments including current mortgage repayments, credit card limits, personal loans, living expenses, and other financial obligations. They calculate whether your income sufficiently exceeds expenses to comfortably service additional borrowing.

Your employment stability matters significantly. Lenders prefer consistent employment history, particularly permanent positions. Self-employed borrowers typically need two years of tax returns and financial statements demonstrating steady income.

Credit history plays an important role in both loan approval and interest rates offered. Lenders check your credit report for any defaults, late payments, or excessive credit applications.

Attain Loans understands different lenders’ serviceability criteria and can identify which institutions will view your circumstances favourably. Brokers can run scenarios showing how different loan structures affect your serviceability position, helping you understand realistic borrowing limits before formal applications.

Some homeowners discover they have substantial equity but limited borrowing capacity due to income or existing commitments. Understanding this distinction early prevents wasted time searching for properties you ultimately cannot finance.

Step 4 for accessing equity: review loan options and structure

With your equity position and borrowing capacity understood, evaluate loan structures for accessing equity and financing your investment.

Most commonly, investors either refinance their existing home loan or establish a separate loan using their home as security. Refinancing involves replacing your current mortgage with a larger loan from either your existing lender or a new lender. The increased loan amount releases equity you can use for the investment property deposit.

Alternatively, keep your existing home loan unchanged and establish a separate loan secured against your home’s equity, keeping the two facilities distinct.

Investment property loans typically attract higher interest rates than owner-occupied loans. Lenders view investment lending as carrying slightly higher risk. However, the interest on investment property loans is generally tax-deductible, which partially offsets the higher rate through tax benefits.

Many investors choose interest-only loans for investment properties. These require paying only the interest component each month, not principal reductions. Interest-only loans result in lower minimum repayments, improving cashflow particularly in early years. The entire interest payment on an investment loan is typically tax-deductible, whereas principal repayments are not, making interest-only structures tax-effective.

Keeping your home loan and investment loan separate provides clear distinction for tax purposes. This structure makes it straightforward to identify which interest payments relate to income-producing assets.

Attain Loans can compare loan products across multiple lenders, examining interest rates, loan features, offset account availability, and structural options. Different lenders offer varying terms, and what suits one investor’s circumstances may not suit another’s.

Step 5 for accessing equity: navigate application and settlement

The formal application requires comprehensive documentation. Lenders typically need recent payslips, tax returns, bank statements, identification, and details of existing assets and liabilities. Investment property purchases require additional information including the property’s purchase contract and rental appraisals showing expected income.

Lenders order formal valuations of both your existing property and the proposed investment property. These valuations must meet the lender’s requirements to support the loan amounts. If valuations come in lower than expected, you may need to reassess plans or provide additional funds.

Application assessment times vary between lenders, typically ranging from several days to a few weeks depending on complexity and lender workload. Unconditional loan approval is usually required before settlement dates, so allowing adequate time in your property purchase contract matters.

Throughout this process, Attain Loans manages communications with lenders, follows up on outstanding requirements, and keeps applications progressing toward approval. Mortgage brokers handle the administrative burden, leaving you to focus on property due diligence and settlement preparation.

Once approved, you’ll proceed to settlement where ownership transfers and funds are exchanged. Your investment property loan settles simultaneously with the property purchase, while any refinancing of your home loan also completes.

Understanding Lenders Mortgage Insurance when using equity

Borrowing beyond the 80% LVR threshold triggers Lenders Mortgage Insurance, significantly impacting costs.

LMI is a one-off premium protecting the lender if you default on your loan and the property sells for less than outstanding debt. Importantly, LMI protects the lender, not you as the borrower. You pay the premium but receive no direct protection from the policy.

The LMI premium varies based on loan amount and LVR. Higher LVRs and larger loan amounts result in substantially higher premiums. Investment properties typically attract higher LMI premiums than owner-occupied properties because lenders view investment lending as carrying additional risk. Premiums can range from a few thousand dollars to tens of thousands depending on specific circumstances.

You can usually pay the LMI premium upfront at settlement or capitalise it into your loan amount. Capitalising means paying interest on the premium over your loan life, increasing total cost. However, capitalising avoids requiring additional cash at settlement.

From a tax perspective, LMI paid on investment property loans is generally tax-deductible. The deduction is typically claimed over five years or the life of the loan, whichever is shorter. This tax treatment partially offsets the cost, though you should obtain advice from your accountant.

Some investors strategically choose to pay LMI to enter the market sooner rather than waiting to build additional equity. If property prices are rising, LMI costs might be offset by capital growth achieved during extended saving periods. However, this calculation requires careful analysis.

LMI doesn’t transfer between properties. Purchasing another investment property later may require new LMI if your LVR exceeds 80% again. Contact Attain Loans to model scenarios showing how LMI affects total borrowing costs.

Potential benefits of using home equity for investment

Accessing home equity for investment property offers several wealth-building advantages.

The most immediate benefit is entering the investment market without saving separate cash deposits. Years of systematic saving can be bypassed by leveraging equity already accumulated through home ownership. This acceleration allows you to establish investment positions while market conditions are favourable.

Using equity rather than cash preserves your liquid funds for other purposes. You maintain emergency reserves, can cover property purchase costs like stamp duty and legal fees from savings, and retain financial flexibility for unexpected expenses.

From a tax perspective, investment property ownership delivers benefits that owner-occupied properties cannot provide. The interest on your investment property loan is typically tax-deductible against your rental income and other taxable income. Property expenses including council rates, insurance, maintenance, property management fees, and depreciation can also generate tax deductions.

Building a property portfolio using equity allows you to benefit from capital growth across multiple assets rather than a single property. If both your home and investment property appreciate in value, your total wealth position grows faster than holding only one property. This leverage effect, combined with rental income helping offset costs, creates multiple profit centres working simultaneously.

Melbourne’s rental market current tight conditions favour property investors. With vacancy rates at historic lows and strong tenant demand, investors face reduced vacancy risk and good prospects for rental growth.

Risks and important matters to weigh before using equity

While accessing equity for investment property offers advantages, you must thoroughly understand the risks.

The most significant risk is substantially increased debt. You’re increasing your total debt position across both your home and the investment property. This higher debt burden means larger monthly repayments and increased exposure to interest rate movements.

Interest rate risk becomes more acute when managing two properties. Even modest rate rises translate to significantly higher monthly repayments across total borrowing. If income doesn’t rise in line with rate increases, or if you face reduced income through job loss or business challenges, meeting repayment obligations becomes stressful.

Market risk affects both properties simultaneously. If Melbourne property values decline, your equity reduces in both your home and investment property. Severe market downturns could result in negative equity where total loans exceed combined property values. This scenario makes selling extremely difficult and refinancing problematic.

Investment property specific risks add another layer. Rental vacancies mean periods without income while you still meet full loan repayments, rates, insurance, and other fixed costs. Tenant issues including non-payment of rent or property damage create stress and potential financial loss. Unexpected maintenance costs like replacing hot water systems or repairing storm damage demand immediate funds.

Over-leveraging represents perhaps the most dangerous risk. Borrowing the maximum amount your equity and income permit leaves no buffer for unexpected changes. Property investors who stretch finances to absolute limits find themselves vulnerable to any disruption. Financial prudence suggests borrowing well within your capacity and maintaining reserves for contingencies.

Cashflow strain from managing two properties affects lifestyle and financial security. Investment properties rarely generate sufficient income to fully cover all costs in early years. The gap between rental income and total property costs comes from your other income sources.

These risks aren’t meant to discourage property investment using equity, but to ensure informed decisions with realistic understanding of potential challenges.

Working with mortgage brokers and getting professional guidance

The complexity of leveraging home equity for investment property makes professional guidance valuable throughout your journey.

Mortgage brokers specialise in navigating the lending landscape on behalf of clients. Attain Loans works with multiple lenders, understanding their different criteria, rate structures, and loan features. This broad access means brokers can identify which lenders best suit your circumstances and which loan structures align with your goals.

Beyond securing finance, mortgage brokers provide ongoing support through the application process, settlement, and often beyond into your investment journey. They handle communications with lenders, chase outstanding requirements, and solve problems that arise.

Attain Loans brings specialist expertise in Melbourne investment property finance. The team understands local market conditions, lender appetite for different property types and locations, and the specific challenges Melbourne investors face.

Accountants play a critical role in structuring your property investment tax-effectively. They can advise on loan structures that maximise tax deductions and help you understand cashflow implications after accounting for tax benefits.

Financial planners evaluate whether property investment aligns with your broader financial strategy, goals, risk tolerance, and timelines.

Starting your equity-based investment journey begins with honest assessment of your financial position and clear articulation of your goals. Understanding what you want to achieve, your timeframe, and your comfort with various risks helps professionals provide relevant advice.

Contact Attain Loans for a complimentary initial consultation. These discussions help you understand whether accessing equity for investment property suits your situation and what steps you’d need to take to proceed. The team will assess your equity position, evaluate borrowing capacity, and provide objective guidance based on your specific circumstances.

Taking action on your property investment goals

Accessing your home’s equity to purchase investment property represents a powerful wealth-building strategy. The ability to leverage assets you’ve already accumulated accelerates your investment timeline and creates opportunities for growth across multiple properties.

However, this approach requires careful planning, realistic financial assessment, and thorough understanding of opportunities and risks. Increased debt, market exposure, and property management challenges demand respect and preparation.

Melbourne’s current property market presents favourable conditions for strategic investors who can access equity from existing properties. Relative affordability, strong rental fundamentals, and long-term growth drivers create a backdrop worth evaluating for your specific circumstances.

The difference between successful property investment and financial stress often comes down to preparation and professional support. Working with experienced mortgage brokers helps you structure your approach properly and avoid common pitfalls that trap unprepared investors.

Attain Loans specialises in helping Melbourne homeowners transform equity into investment opportunities through careful planning and appropriate finance structures. Whether taking your first steps toward property investment or expanding an existing portfolio, professional guidance makes the journey more manageable and success more likely.

Your home equity represents accumulated wealth that can potentially work harder for your financial future. With the right preparation, expert advice, and realistic expectations, this equity can become the foundation for building lasting wealth through Melbourne property investment.

Contact Attain Loans today to discuss how your home equity could unlock your investment property goals. The team is ready to provide personalised guidance aligned with your circumstances and aspirations.

Further questions

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.