When to Refinance & Access Equity for Investment

Refinancing to access equity means borrowing against the value sitting in your home to fund your next purchase.

Refinancing to access equity means increasing your loan amount against the value of your existing property. The additional funds are drawn at settlement and used as a deposit or part-payment for an investment property. This is distinct from a standard rate-and-feature refinance where your loan balance stays the same.

Consider a professional couple in Paddington who bought a renovated terrace in 2021 for $2,900,000 with an original loan of $2,320,000. At the current suburb median of around $3,600,000, the property has appreciated by roughly $700,000. Assuming they have paid down the loan to $2,150,000, their usable equity sits at approximately $730,000 (calculated as 80% of current value minus the remaining loan balance). They refinance and increase the loan to $2,730,000, drawing $580,000 in cash. That $580,000 forms the deposit and covers stamp duty and legal costs for a unit purchase in Bondi Junction. The outcome is two properties, both with loans sitting at or below 80% loan-to-value ratio, avoiding lenders mortgage insurance on the second purchase.

How much equity can you actually access through a refinance?

Most lenders will allow you to borrow up to 80% of your property's current value without requiring lenders mortgage insurance. Your accessible equity is 80% of the valuation, minus what you still owe. If your property is valued at $4,000,000 and your loan sits at $2,800,000, you can access up to $400,000 in usable equity without paying LMI.

Some lenders will go to 90% or even 95% loan-to-value for equity release, but this triggers LMI and often a higher interest rate. For self-employed borrowers, LMI at these levels can add tens of thousands to the cost and may require full financial statements rather than the simplified income assessment some lenders now accept at lower LVRs. The cost and complexity usually outweigh the benefit unless the investment opportunity is time-sensitive and the numbers are compelling.

Valuations in prestige suburbs like Paddington, Double Bay, Woollahra and Bellevue Hill can be volatile. A $5,000,000 home might be valued by one lender at $4,700,000 and another at $5,200,000, depending on comparable sales and the valuer's interpretation. This variance directly affects how much equity you can access, so it pays to know which lenders use which valuation panels in your suburb before lodging.

Using a fixed rate expiry as the trigger to refinance and release equity

If your fixed rate period is ending, that is often the cleanest moment to refinance and access equity in one transaction. You are already moving off the fixed product, so there are no break costs. Most lenders treat an equity increase at the time of a rate switch as part of the same application, so you avoid paying multiple sets of fees.

A self-employed borrower in Rose Bay whose fixed term ended recently had been paying 2.19% fixed and was due to revert to a variable rate above 6%. Rather than simply switching to a lower variable rate, they refinanced to a new lender offering 5.65% variable, increased the loan by $620,000, and used the released funds to purchase an investment unit in Rushcutters Bay. The new loan structure included an offset account on the owner-occupied portion and interest-only repayments on the investment portion, improving monthly cashflow by roughly $1,800. Timing the equity drawdown to coincide with the fixed rate expiry meant one application, one valuation, and one settlement.

Structuring the loan so investment interest remains deductible

When you refinance to access equity for investment, the loan needs to be split into two portions. The original loan balance remains linked to your owner-occupied property. The additional borrowed amount, drawn specifically to fund the investment, is kept in a separate split or sub-account and treated as an investment loan for tax purposes.

This separation is not optional. The ATO traces deductibility to the purpose of the borrowing, not the security. If you draw $500,000 for an investment property but that amount is blended into your home loan account, you lose the ability to claim the interest as a deduction. Keeping the splits clean from day one avoids costly reconstruction later. Some lenders allow you to manage both splits under one facility with separate interest calculations. Others require distinct loan accounts.

For borrowers also considering debt recycling, this structure becomes the foundation. You can progressively convert non-deductible debt into deductible debt over time by redirecting repayments and reinvesting, but only if the loan splits are correctly established at the outset.

Serviceability hurdles when you are self-employed and refinancing to increase debt

Lenders assess your ability to service both the existing loan and the additional equity drawdown. For self-employed borrowers, this means providing up-to-date financials, and in some cases, a letter from your accountant confirming year-to-date income. The investment property's rental income is included in the assessment, but most lenders apply a discount of 20% to account for vacancy and maintenance.

If you operate through a company or trust, some lenders allow you to declare retained earnings as assessable income, while others do not. This variance can shift your borrowing capacity by several hundred thousand dollars, especially in scenarios where you have been reinvesting profit rather than drawing a large salary. Working with a broker who knows which lenders treat self-employed income most favourably ensures you are not leaving equity or opportunity on the table simply because the first lender you approached has restrictive policies.

Offset versus redraw when managing two properties on one refinance

Once you have refinanced and split the loan, you will typically have one portion for your home and one for the investment. An offset account attached to the owner-occupied split allows you to park surplus income and reduce interest without affecting the loan balance or your ability to claim deductions elsewhere. Redraw facilities allow you to pull funds back out, but each withdrawal can create a new tax event if not handled carefully.

For the investment portion, most borrowers structure this as interest-only with no offset or redraw, keeping it simple and ensuring every dollar of interest is deductible. The owner-occupied portion is set to principal-and-interest with an offset, so you can reduce interest while maintaining access to liquidity. This combination gives you control over cashflow, tax efficiency, and the flexibility to adjust repayments as income fluctuates.

What a loan health check reveals before you refinance to access equity

Before refinancing to release equity, a loan health check identifies whether your current loan structure, rate, and features still suit your circumstances. It also highlights how much equity is available, what your borrowing capacity looks like under current policy, and whether moving lenders will actually improve your position or simply shuffle the deck.

In our experience, around one in three borrowers who consider refinancing to access equity find they are better off staying with their current lender and negotiating a top-up facility or internal equity release, especially if their existing rate is already competitive and the lender offers a streamlined process for existing customers. The other two-thirds benefit from moving, either because they are stuck on a high rate, need features their current lender does not offer, or can access a larger drawdown with a different lender due to more favourable income assessment.

A home loan health check takes into account your current rate, how far through the loan term you are, upcoming fixed rate expiries, and whether consolidating other debts into the refinance makes sense. For professionals and self-employed borrowers juggling multiple income sources, it also stress-tests serviceability under different lender policies to find the path that releases the most equity without compromising approval.

When refinancing to access equity does not make sense

Refinancing to access equity is not always the most efficient path. If you have significant break costs on a fixed loan, or if your current lender offers an equity release without requiring a full refinance, moving may cost more than it saves. If your property has not appreciated materially since purchase, or if recent comparable sales in your suburb have softened, the valuation may come in lower than expected and limit how much you can draw.

Some borrowers are approaching the end of their loan term and have built significant equity through repayments. In these cases, releasing equity and extending the loan term may reduce monthly repayments but increase total interest paid over the life of the loan. If the investment property does not generate enough capital growth or rental return to justify that cost, the refinance can work against you. Each scenario needs to be modelled with actual numbers, actual rental yields, and actual holding costs before proceeding.

Call one of our team or book an appointment at a time that works for you. We will walk through your current position, what is available in your property, and how to structure the refinance so both loans work in your favour from day one.

Frequently Asked Questions