How to use equity to buy a second property

Refinancing to pull equity means borrowing more against your home.

You refinance your existing home loan to a higher amount and pocket the difference as cash. That cash becomes your deposit and costs for a second property. Your lender approves the increase based on your current property value and what you can afford to repay on the larger loan. You're not selling anything or taking a separate loan. You're just increasing what you owe on the home you already own and using the extra funds to buy another one.

This works when your property has gone up in value or you've paid down enough of the loan to create a buffer between what you owe and what the place is worth. Most lenders will let you borrow up to 80% of your property value without paying lenders mortgage insurance. Some will go to 90% if you're willing to pay the LMI premium, but that usually eats into what you can actually use.

How much equity can you actually pull out?

The amount you can access depends on your property value, what you still owe, and how much the lender will let you borrow. If your home is worth $700,000 and you owe $400,000, you have $300,000 in equity. But you can't pull all of it. At 80% loan to value ratio, the lender will let you owe up to $560,000. Subtract your current $400,000 loan and you can access $160,000. That's enough for a deposit and costs on a second property if you're buying something around $650,000 to $700,000 with a 20% to 25% deposit.

If you want to pull more and go to 90% LVR, you'd owe up to $630,000, giving you $230,000 in available funds. But you'll pay LMI on the portion above 80%, which could be $10,000 to $20,000 depending on the loan size and lender. That premium gets added to your loan, so it reduces what you actually walk away with. In our experience, most tradies stick to 80% unless the investment opportunity is strong enough to justify the extra cost.

What the approval process actually looks at

Your lender will assess your income and expenses as if you're already carrying both loans. They want to see that you can service the increased loan on your home plus the new loan on the investment property. If you're earning $120,000 a year as a sparky and have minimal personal debts, you'll have more borrowing capacity than someone on the same income with a ute loan, credit card debt, and a family to support.

The lender will also want a valuation on your current home to confirm the equity is actually there. If you think your place is worth $700,000 but the bank's valuer says $650,000, your available equity drops by $50,000. That can kill a deal if you've already committed to buying the second property. Get your numbers checked before you start looking.

Using equity for an investment property means two loans, not one.

You'll refinance your home loan to release the cash, then take out a separate loan to buy the investment property. The equity you pulled becomes your deposit for that second loan. The two loans are independent, but both sit on your serviceability assessment. Some brokers will structure the investment loan as interest-only to keep repayments lower and improve cash flow, especially if the rental income doesn't fully cover the mortgage. That approach works if you're holding the property for capital growth rather than paying it down quickly.

Consider someone who refinances their home in the western suburbs and pulls $180,000 to buy a unit in a regional area with strong rental demand. They put down $150,000 as a 25% deposit on a $600,000 unit and use the remaining $30,000 for stamp duty and legals. The investment loan is interest-only at around $2,400 a month, and the unit rents for $550 a week, covering most of the repayment. The shortfall is $200 a week, which they cover from their tradie income. Over five years, the unit grows in value and they've built equity in a second property without saving a cent from their wages.

Rental income helps but won't carry the full cost.

Lenders will include rental income in your serviceability assessment, but they only count 80% of it to allow for vacancy periods and maintenance costs. If your investment property brings in $500 a week, the lender treats it as $400. You'll still need enough personal income to cover the gap between the rental income and the loan repayments, plus your own living costs and the higher repayment on your refinanced home loan.

This is where a lot of tradies get stuck. They assume the rent will cover the investment loan and forget about the extra $300 or $400 a week they're now paying on their own home because they've increased that loan balance. Your total position across both properties has to stack up, not just the investment side. If you're looking at investment loans for tradies, talk through the full picture before you commit.

What it costs to refinance and buy at the same time

You'll pay discharge fees on your old loan if you're moving lenders, usually $300 to $500. Application and valuation fees on the new loan can be another $600 to $1,000, though some lenders waive them. Then you've got the second property purchase costs, stamp duty, legals, building and pest inspections, and potentially strata reports if it's a unit. Stamp duty alone on a $600,000 purchase in most states is $20,000 to $25,000, depending on concessions and state.

You can sometimes roll the refinance costs into your new loan, but the purchase costs need to come from your equity drawdown. Budget for at least 5% of the purchase price in transaction costs on top of your deposit. If you're pulling $180,000 and putting $150,000 down as a deposit, that leaves $30,000 for costs. In some states that's tight, in others it's enough. Check before you assume.

When refinancing to release equity doesn't make sense

If you've only owned your home for a year or two and property values haven't moved much, you might not have enough equity to make this work. If your loan balance is still close to what you paid, there's nothing to pull. Same problem if you've been making interest-only repayments and haven't paid down any principal. Equity comes from property value growth or loan reduction, and you need one or both to have happened.

The other issue is serviceability. If your income is irregular, you're switching from employed to self-employed, or you've taken on new debts recently, the lender might not approve the higher borrowing even if the equity is sitting there. This is common with tradies who've just gone out on their own or taken on a new ute loan. You might need to wait six months or structure things differently through a broker who works with self-employed loans for tradies and understands how to present your income properly.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your current property, work out what you can actually access, and structure the refinance and investment loan so both get approved without blowing out your repayments.

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