Everything You Need to Know About Using Home Equity

If you own property in Highett and you've been paying down your loan or seen your property value climb, you likely have equity sitting there that could help you buy a second property.

Equity is the difference between what your home is worth and what you owe on it. When you refinance to release equity, you're increasing your loan amount to access some of that value as cash. That cash can then be used as a deposit for an investment property, helping you step into the property market again without needing to save another full deposit from scratch.

The mechanics are straightforward. You apply to refinance your current home loan with a lender who will lend you more than you currently owe, based on your property's current value and your borrowing capacity. The difference between your old loan balance and the new loan amount is paid to you as cash, which you can then use toward your second property purchase.

How Much Equity Can You Actually Use?

Most lenders will let you borrow up to 80% of your property's value without needing to pay lenders mortgage insurance.

If your home is worth $900,000 and you owe $500,000, you have $400,000 in equity. At 80% loan to value ratio, you could borrow up to $720,000. Subtract the $500,000 you still owe, and that leaves $220,000 in usable equity. After setting aside funds for refinancing costs and keeping a buffer, you'd have around $210,000 available to put toward your next purchase.

Not all of that equity needs to be used. You might only need $100,000 for a deposit on an investment property, so you'd refinance to a loan of $600,000 instead. The key is working out how much you need, how much you can borrow, and what that does to your repayments.

What Lenders Look at When You Refinance for Cash

Lenders assess your income, expenses, existing debts, and credit history just like they would for any other loan application.

The difference with a cash out refinance is that you're borrowing more, so your repayments will go up. Lenders want to see that you can comfortably service the higher loan amount while also managing the costs of a second property if that's what you're buying. They'll look at rental income if you're purchasing an investment, but they typically only count 80% of the expected rent to allow for vacancy and maintenance.

If you're planning to use the equity for a deposit on an investment property, lenders will also want to understand the property you're buying, its location, and its income potential. Serviceability becomes more complex when you're holding two properties, so it's worth running the numbers early.

Refinancing in Highett: Local Property Context

Highett sits between Cheltenham and Moorabbin, close to Southland Shopping Centre and with direct train access to the city. The suburb has a mix of older brick homes, newer townhouses, and units, and it's popular with families and young professionals who want to stay in the Bayside area without paying Brighton or Beaumaris prices.

Property values in Highett have grown steadily, which means homeowners who bought several years ago often have more equity than they realise. If you purchased around the time the Southland redevelopment was underway, your property value may have increased significantly since then. That growth translates directly into available equity that you can tap into for your next purchase.

Many Highett residents we work with are looking to buy investment properties in nearby suburbs like Cheltenham or Mentone, where rental demand is solid and the properties are within a familiar area. Using equity from a Highett home to fund a deposit on a property a few suburbs over keeps the investment local and reduces the unknowns.

Structuring Your Loans After You Release Equity

Once you've accessed your equity and purchased a second property, you'll have two loans to manage.

Some buyers keep everything on one loan secured against the original property. Others split the lending so the original property has its own loan and the investment property has a separate loan secured against itself. The second approach gives you cleaner separation for tax purposes, especially if you're claiming interest on the investment loan as a deduction.

Consider a buyer who refinances their Highett home to release $120,000 in equity. They use that cash as a deposit on a unit in Moorabbin. The original Highett loan increases to reflect the equity release, and a new loan is set up for the Moorabbin unit. The buyer now has two properties, two loans, and the ability to claim the interest on the investment loan against their rental income. Structuring it this way from the start avoids the need to unpick loan purposes later when preparing tax returns.

Your accountant will have a view on how to structure your lending for the most flexibility and tax efficiency, so it's worth having that conversation before you refinance.

Costs Involved in Refinancing to Access Equity

Refinancing isn't without cost, even if you're staying with the same lender.

You may need to pay for a property valuation, discharge fees from your current lender if you're switching, application fees for the new loan, and possibly settlement or legal costs. These typically add up to a few thousand dollars. Some lenders will roll these costs into the loan, but that increases the amount you're borrowing and the interest you'll pay over time.

If you're refinancing to release equity and then immediately using that equity to buy another property, you'll also have the usual purchase costs on the second property: stamp duty, conveyancing, building and pest inspections, and possibly mortgage insurance if you're borrowing above 80% on the investment loan.

Work through the full cost picture before committing. It's easy to focus on the deposit you're gaining and overlook the fees you're paying to access it.

Timing Your Refinance and Your Purchase

You don't need to wait until your refinance is fully settled before you start looking for an investment property, but you do need to know your equity is approved and available.

Most buyers get their refinance approved first, then go shopping with a clear understanding of their budget. That way, when you find a property, you can move quickly without the risk of your finance falling through. Some lenders will give you conditional approval on the refinance and let you use that to make an offer, as long as the conditions are straightforward and likely to be met.

If you're buying at auction, timing becomes more important. You need the refinance sorted and the funds available before auction day, or you need to be confident your lender will settle quickly enough to meet the contract terms.

What Happens If Property Values Drop After You Refinance

If you refinance at 80% loan to value ratio and property values drop, your loan to value ratio increases even though your loan amount hasn't changed.

That doesn't usually trigger any immediate action from your lender, but it does limit your options if you want to refinance again in the short term. If values drop enough that you're suddenly above 80%, you might need to pay mortgage insurance on any future refinance, or you might not be able to access further equity until values recover or you pay down more of the loan.

Property values in Highett have generally been stable, but it's worth understanding that accessing equity locks in your property value at a point in time. If you're releasing a large portion of your available equity, make sure you're comfortable with the loan amount and the repayments even if values flatten or dip for a period.

Should You Use a Mortgage Broker to Refinance?

You can refinance directly with a lender, but a mortgage broker has access to a wider panel of lenders and can compare your options based on rate, features, and serviceability.

When you're refinancing to release equity for a specific purpose like buying a second property, the structure matters. A broker can help you set up your loans in a way that makes sense for your tax position, keeps your costs down, and gives you flexibility down the track. They'll also manage the application process, liaise with the lender, and make sure everything is in place before you commit to a purchase.

If you're in Highett and you're thinking about using your equity to buy an investment property, call one of our team or book an appointment at a time that works for you. We'll walk through your equity position, work out what you can access, and structure your refinance so it sets you up for the next step.

Frequently Asked Questions