A lot of Sydney homeowners are sitting on equity they don’t fully understand — and missing an opportunity because of it. If you bought a home in Sydney even five or six years ago, there’s a good chance you’ve built up enough equity to use as a deposit on an investment property. You just need to know how to access it and structure it correctly.
Here’s how it actually works, with real numbers.
What Is Usable Equity?
Equity is the difference between what your property is worth and what you owe on it. But you can’t access all of it — lenders generally let you borrow up to 80% of the current value without requiring Lenders Mortgage Insurance (LMI).
So the formula is: (Property value × 0.80) − current loan balance = usable equity.
Let’s say you bought in Parramatta in 2019 for $750,000 with a $600,000 loan. You’ve paid it down to $540,000, and the property is now worth $1,050,000.
- 80% of $1,050,000 = $840,000
- Minus your current loan of $540,000 = $300,000 usable equity
That $300,000 can act as the deposit and purchase costs for a second property — without touching your savings.
The Two Most Common Ways to Access It
1. Refinance and cash out — You refinance your existing loan to a higher amount and take the difference in cash. That cash sits in your account and gets used as the deposit on the investment property purchase. Simple, but it increases your loan balance and monthly repayments on your home.
2. Cross-securitisation — The lender uses both properties as security for both loans. This is common when you stay with the same bank for both. The problem is it gives the bank more control over both properties, which can complicate things down the track if you want to sell one or refinance. Most experienced brokers advise against it unless there’s a compelling reason.
The cleaner approach for most people is keeping the loans separate — refinancing your existing home to release equity as cash, then using that cash as the deposit on the new loan. Two separate loans, two separate lenders. More flexible long-term.
A Real-Life Scenario
Matt and Claire own a home in Blacktown, currently valued at $920,000. Their mortgage sits at $490,000. They’re both working, combined income of $185,000, with one car loan at $400/month.
They want to buy an investment property in Western Sydney — something around the $700,000 mark near the new airport corridor.
Their usable equity: (920,000 × 0.80) − 490,000 = $246,000
A $700,000 purchase needs roughly a 20% deposit plus stamp duty and costs — approximately $160,000–$170,000 all up. Their equity covers it comfortably.
When we assessed their serviceability, the car loan was knocking about $60,000 off their borrowing capacity. Paying it out before settlement (they had the funds available) improved their position meaningfully. The rental income on the investment property — conservatively assessed at around 70% — also contributed to serviceability.
They ended up purchasing a three-bedroom house in Leppington at $695,000. The loan was structured interest-only for the first five years on the investment (to maximise deductibility against taxable income), and principal and interest on the home loan. Two separate lenders — one for each property — which kept the structures clean and gave them flexibility to refinance either loan independently.
Why Going Direct to Your Bank Usually Costs You
The most common mistake people make is calling their current bank first. It makes sense emotionally — they already have your details, it feels easier. But here’s the reality:
Your bank will only show you their products. Their variable investment rate might be 6.44%. Another lender is sitting at 5.89% for the same LVR profile. On a $560,000 investment loan, that’s roughly $3,080 per year in extra interest. Over five years, that’s over $15,000 that didn’t need to be spent.
Banks also have tighter credit policies in-house. Lender A might cap your borrowing capacity at $680,000. Lender B uses a different serviceability model and approves $760,000 for the exact same application. That $80,000 gap can determine whether a deal works or doesn’t.
A broker’s job is knowing which lenders are favourably assessing which borrower profiles right now — and that changes constantly. Lenders tighten and loosen their policies regularly. What worked best with one bank six months ago might work better with a different lender today.
What the Bank Won’t Tell You About Structuring
Most bank staff won’t give you tax structuring advice. But the way your loans are set up has real tax consequences that are worth understanding.
Interest on investment loans is generally tax-deductible. The higher the interest component, the larger the deduction — which is one reason interest-only periods are popular with investors. It’s not about avoiding debt reduction; it’s about optimising cash flow in the early years while the property appreciates.
But you don’t want interest-only on your home loan — that debt isn’t deductible. The smart play is to direct repayment dollars at the non-deductible debt (your home loan) while keeping the investment loan interest-only. Getting this wrong costs thousands in unnecessary tax over time.
A good broker flags this. A bank branch rarely does.
What You Need Before You Apply
To get a proper equity and borrowing capacity assessment:
- A recent valuation or strong comparable sales for your current property
- Your current loan balance and statements (last 3 months)
- 2 years of tax returns and recent payslips (or last 2 NOAs if self-employed)
- A full list of debts — car loans, credit card limits, personal loans, HECS
- A rough idea of where you want to buy and at what price point
You don’t need to have a specific property in mind yet. The assessment comes first, then the search. Knowing exactly what you can spend before you start looking is how you avoid the heartbreak of missing out because your finance wasn’t ready.
The Bottom Line
If you’ve owned a home in Sydney for more than three or four years, there’s a real possibility your equity can fund your first investment property — without putting in a single extra dollar from savings. The numbers work for more people than realise it.
The question isn’t usually can I do this — it’s how do I structure it correctly and which lender gives me the best outcome? That’s exactly what a broker works out for you.
Get a free equity and borrowing capacity assessment from Loan Connect. We’ll work out your usable equity, your full borrowing capacity, and which lenders are best placed to fund your next property — whether it’s your first investment or your fifth. No obligation, just clear numbers. Book a call today.
