Why Should You Refinance to Buy a Second Property?

Your property equity can be the deposit for an investment property without touching your savings.

If you bought in Brighton East five or more years ago, your property has likely increased in value enough to fund a second purchase. The question is whether you can access that equity, what the lender will approve, and how the loan structure affects your cash flow once you own two properties.

What Does Refinancing to Release Equity Actually Mean?

Refinancing to release equity means increasing your home loan amount so you can withdraw the difference between what you owe and what your property is worth. A lender will typically allow you to borrow up to 80% of your property's current value, minus what you still owe. That difference becomes usable cash for a deposit, stamp duty, and other purchase costs on a second property.

Consider a Brighton East homeowner who bought for $1.1 million several years ago and now owes $650,000. The property is now valued at $1.4 million. At 80% LVR, they could borrow up to $1.12 million. After repaying the existing $650,000, they have access to $470,000 in equity. That amount covers a 20% deposit on a property worth $600,000, plus stamp duty and associated costs, without needing to sell or dip into personal savings.

How Much Equity Can You Actually Use?

You can borrow up to 80% of your property's current value without paying lender's mortgage insurance, but your usable equity depends on what you still owe. The gap between 80% of your property's value and your existing loan balance is what you can release. If your property is worth $1.4 million and you owe $650,000, you have $470,000 in usable equity at 80% LVR. If you owe $900,000 on the same property, your usable equity drops to $220,000.

Your borrowing capacity also plays a role. Lenders assess whether you can service both loans based on your income, expenses, and existing commitments. If your income supports the repayments on both properties, the equity is accessible. If it doesn't, the lender will reduce the amount you can borrow or decline the application altogether. This is where structuring the refinance correctly makes the difference between approval and rejection.

Does Refinancing Affect Your Interest Rate?

Refinancing usually means moving to a new loan product, which gives you the chance to secure a lower rate or access features your current loan doesn't offer. Many homeowners who bought several years ago are still on higher rates or fixed terms that have since expired. Moving to a lower variable rate or a more flexible loan structure can offset the increase in repayments from the additional borrowing.

In our experience, homeowners who refinance to access equity often end up with lower overall interest costs if they switch from an outdated product to a loan that reflects current market conditions. The key is ensuring the new loan matches your goals. If you're planning to hold the investment property long term, a loan with an offset account or redraw facility gives you flexibility to manage surplus cash and reduce interest over time.

What About the Loan Structure for the Investment Property?

The loan structure determines how tax-effective your borrowing is and how much flexibility you have as your circumstances change. Most buyers use the equity from their home to fund the deposit on an investment property, then take out a separate loan for the investment purchase itself. This keeps the debt for the investment property separate, which means the interest on that loan is fully tax-deductible.

If you mix personal and investment debt on the same loan, you lose the ability to claim the full interest deduction. A Brighton East homeowner releasing $150,000 in equity for an investment deposit should keep that $150,000 on a separate loan split, linked to the investment property. The interest on that split, plus the interest on the investment loan itself, can then be claimed as a deduction. If the debt is blended with the home loan, the ATO will disallow part of the claim.

How Long Does the Refinance Process Take?

The refinance process typically takes three to five weeks from application to settlement, depending on how quickly the valuation is completed and how responsive your current lender is with the discharge. You'll need to provide income documentation, a current valuation of your property, and details of the investment property you intend to purchase. If you're refinancing to access equity before you've found a property, some lenders will approve the loan in principle and hold the equity in an offset or redraw until you're ready to use it.

Timing matters if you've already found an investment property and need to settle within a specific period. A mortgage broker can coordinate the refinance and the investment loan simultaneously, so both settle in line with your contract terms. If the refinance is delayed, you may need to arrange bridging finance or renegotiate your settlement date, both of which add cost and complexity.

What If You Want to Borrow More Than 80% LVR?

Borrowing above 80% LVR is possible, but it requires paying lender's mortgage insurance, which can add several thousand dollars to your upfront costs. For a property valued at $1.4 million, LMI on a loan above $1.12 million could cost anywhere from $10,000 to $30,000, depending on how far above 80% you go. Some lenders will allow you to capitalise the LMI into the loan, but this increases your total debt and your ongoing repayments.

If you don't have enough equity at 80% LVR to cover the full deposit and costs, you can either contribute some of your own savings, choose a lower-priced investment property, or accept the LMI cost. The decision depends on whether the investment property's rental yield and capital growth justify the additional expense. In areas like Brighton East, where property values have grown steadily, paying LMI to access equity sooner can still make financial sense if the investment property performs well.

Can You Use Equity from an Investment Property to Buy Another?

You can use equity from an existing investment property to fund a second investment purchase, provided you have enough usable equity and your income supports the additional borrowing. The same 80% LVR rule applies, and the lender will assess your serviceability based on the rental income from both investment properties, plus your personal income and expenses.

Rental income is typically assessed at 80% of the actual rent to account for vacancy and maintenance costs. If your investment property generates $600 per week in rent, the lender will use $480 per week in their serviceability calculation. This reduces your borrowing capacity compared to using equity from an owner-occupied property, where no rental income offset is required. Structuring the loans correctly and choosing a lender with favourable investment property policies becomes even more important when you're building a portfolio.

Refinancing to access equity is one of the most effective ways to build a property portfolio without selling your home or draining your savings. The structure you choose now affects your tax position, your cash flow, and your ability to borrow again in the future. If you're considering using your Brighton East property to fund an investment purchase, call one of our team or book an appointment at a time that works for you.

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