Use home equity to buy an investment property: the smart way to invest when inflation bites

Inflation has a funny way of changing people's plans.

When the cost of living rises, saving a fresh deposit can feel slow.

At the same time, many homeowners have built equity simply by paying down their loan and riding property growth.

That's why the question keeps popping up:

“Can I use the equity in my home to invest, even if the market gets shaky?”

You can, in the right circumstances.

But equity investing only works when it's done with eyes open, a cash buffer, and a loan structure that does not corner you if rates rise again.

This guide breaks it down in plain English, with the key numbers, options, and checks most people need before they make the move.

What it means to use home equity to buy an investment property

Equity is the difference between what your home is worth and what you still owe.

Westpac explains it simply: if your home is worth $800,000 and you owe $450,000, your equity is $350,000.

But what matters for investing is usable equity, which is the portion a lender will actually let you borrow against.

Equity vs usable equity (the part lenders look at)

Usable equity is commonly calculated as 80% of your property's value, minus your existing loan balance. Westpac uses the same 80% rule of thumb and shows the basic equation.

CommBank also frames it this way and notes lenders are generally comfortable up to 80% before other costs can come into play.

A quick example (so you can run a quick check of your own numbers)

Let's use a common scenario (similar to CommBank's example):

1. Home value: $750,000
2. Current loan: $400,000
3. Total equity: $350,000
4. Usable equity (80% rule): 80% of $750,000 is $600,000
5. Usable equity: $600,000 minus $400,000 = $200,000

That usable equity can potentially become your investment property deposit, depending on income, debts, and serviceability.

Why 80% keeps coming up

Because when borrowing goes above 80% of the property value, you may trigger lenders mortgage insurance (LMI) and a tighter policy.

MoneySmart defines LMI as a one-off cost that usually applies when the amount borrowed exceeds 80% of the property's value.

How can you access equity for an investment property deposit

There are a few common pathways. The best one depends on how much usable equity you have, what you are buying, and how much flexibility you want later.

Home loan top up (increase your existing loan)

A top up increases your current home loan limit and releases funds as cash to use toward the investment purchase.

Westpac notes that repayments increase because you are borrowing more, and the loan term usually stays the same.

Supplementary loan (a separate split against the same property)

Instead of increasing the main loan, you can set up a new, separate loan account against your usable equity.

Westpac highlights that this can allow different features, and you may choose a different term.

This is often useful for keeping things cleaner and more intentional, especially when the purpose is investment.

Refinance to access equity (restructure, not just “switch lenders”)

ASK Financial's framing is worth stealing because it's true: refinancing does not have to mean chasing a cheaper rate.

It can mean leveraging equity for a new purpose, like investing or upgrading.

The key is that the refinance should improve your overall position, not just increase your debt.

Cross-collateralisation (linking properties)

This is where your home and the new investment property are jointly secured.

Inflation and interest rates: the risks people underestimate

This is the part most “equity investing” content skims over.

When inflation is sticky, rates can stay higher for longer. That makes cash flow the real risk, not the concept of equity itself.

Your borrowing power is not the same as your comfort level

Lenders assess serviceability, but you should assess lifestyle.

ASK Financial's checklist nails the right questions: what is the purpose, what are the repayment costs, what happens if rates rise or income changes, and what is your exit plan?

The buffer is not optional

It's recommended to ensure you can manage additional repayments and costs, especially if the property is negatively geared or you have a vacancy period.

In an inflationary environment, a buffer is what stops a smart move from becoming a stressful one.

Research matters more than hype

If you are investing, don't buy based on vibes.

Westpac's practical list is the right mindset: understand rental demand and price trends, map cash flow, factor strata and maintenance, and avoid overpaying at the top of the market.

Costs and tax considerations you should factor in early

Deposit size and LMI

A 20% deposit is often the line people aim for to avoid LMI. Bankwest notes you will “usually need a 20% deposit” to buy another property, and usable equity can help cover some or all of it.

If you do go above 80% borrowing, understand the cost and why it exists.

Tax is real, but it is not a reason to over-leverage

If the borrowing is for an income-producing rental property, interest is generally deductible, but it must be apportioned correctly based on how the loan was used.

The ATO explains that you can claim interest expenses incurred on the loan used to buy a rental property (and related eligible purposes).

This is where clean loan splits matter, and why you should involve your accountant early.

Asset-rich, cash-poor: when equity access is about lifestyle, not investing

Not everyone is tapping equity to buy an investment property.

Some households use equity release because they are asset-rich and cash-poor, especially as retirement approaches.

Retirement Essentials notes the rise in retirees still carrying mortgages and the growing use of equity access schemes. They compare:

• The Government Home Equity Access Scheme (HEAS) with a low fixed rate cited at 3.95%, and
• reverse mortgages with higher indicative rates cited at 8.75% to 9.5%.

If you are considering these products, MoneySmart provides tools like a reverse mortgage calculator to project how debt and equity can change over time.

Different goal, different product, different risks. It needs its own advice.

Why Cutter & Co helps clients use equity safely

This is where a broker's value is not “getting it approved”. It's structuring the move so you still have options later.

From a compliance and credibility standpoint, Cutter & Co is transparent about operating as Credit Representatives under Connective's Australian Credit Licence (ACL 389328), and lists the core industry qualifications required to provide credit advice.

From a strategy standpoint, when clients come to us wanting to use home equity to buy an investment property, we typically focus on:

• keeping loan purpose clear (so tax and tracking are cleaner)
• stress-testing repayments for rate rises and vacancies
• choosing structures that protect flexibility (instead of accidentally linking everything)
• planning an exit strategy before you buy, not after

That is how you stay calm in an inflationary market: you build a structure that can handle imperfect conditions.

Think of equity like stored water in a tank. You can use it to grow something, like an investment property, but once you open the tap, your monthly outgoings change. If the weather gets harsh (rates rise, vacancy hits, costs jump), the people who do well are those who sized the tank correctly and set aside emergency water. Equity is powerful. Buffers are what make it safe.

Summing up

Using home equity to buy an investment property can be a smart way to move faster than saving a brand-new deposit, especially when inflation makes cash flow feel tight.

But the win is not “accessing equity”. The win is:

• knowing your usable equity (the 80% rule)
• choosing the right access method (top up, split, refinance, or carefully considered security)
• planning for rates, vacancies, and costs with a real buffer
• and keeping tax and loan purpose clean

General information only. This is not financial, legal, or tax advice. Get advice tailored to your circumstances before acting.