Using equity for your next deposit, without breaking your tax position
Accessible equity, why capacity binds before valuation does, and the one structural decision that determines whether your interest stays cleanly deductible.
Most investors buying their third property fund the deposit from equity, not savings. Done properly it is the engine of a portfolio. Done carelessly it contaminates your deductible debt in a way that is annoying to unwind and expensive to explain to your accountant every year afterward.
How much is actually available
Equity is your property’s value minus what you owe. Accessible equity is smaller, because lenders generally lend to 80% of value before lenders mortgage insurance applies.
The working figure: 80% of the current valuation, minus the current loan balance.
That is the ceiling on availability. It is not a prediction of what you will get.
Capacity binds before valuation does
Having equity does not mean a lender will release it. The increased borrowing still has to pass serviceability at the buffered assessment rate. Plenty of investors have substantial equity and no capacity to draw on it — and that is the binding constraint far more often than valuation is.
So the sequence matters: establish capacity, then value the property, then release. Running it the other way means paying for valuations to prove access to money that was never going to be approved.
The split is the whole game
When equity is released for an investment purpose, it should sit in its own loan split. Not added to the existing loan balance.
The reason is that deductibility of interest follows the purpose of the borrowing. Mix investment borrowing into a loan that also carries private borrowing and apportioning the interest becomes an ongoing exercise — and repayments against the blended balance reduce both purposes proportionally whether you want that or not.
A clean split keeps the investment borrowing separately identifiable for as long as it exists. Your accountant makes the tax call. The loan structure just needs to not make their job harder than it has to be.
When not to do it
Releasing equity to fund living expenses, or to plug a servicing shortfall on an existing portfolio, converts a cash flow problem into a bigger debt. Releasing equity to buy an appreciating asset with a plan is a strategy. Releasing it because the money is there is not.
This article is general information only. It does not take your objectives, financial situation or needs into account, and it is not financial, credit, legal or taxation advice. Consider whether it is appropriate for your circumstances and seek independent professional advice where necessary.