The Pros and Cons of Refinancing to Fund an Investment

Refinancing lets you borrow against the equity in your home to fund an investment property. For Milton owners, about 2 kilometres from the Brisbane CBD, it can turn a paid-down home loan into a deposit. It also adds debt and puts your home on the line.

How Does a Refinance to Access Equity Work?

A refinance to access equity replaces your current home loan with a larger one, and you take the extra amount as cash. That cash can then fund a deposit and costs on an investment property.

The lender orders a property valuation, then subtracts your current balance from the amount it is willing to lend against the home. Moneysmart notes that borrowers with less than 20 per cent equity might have to pay lenders mortgage insurance, so many owners aim to keep the new loan at or below 80 per cent of the home's value. The refinance application also involves the lender checking your income, expenses and repayment history. A broker can compare lenders for you through our refinancing service.

Equity Release Example: Splitting the Loan for a Milton Investor

Splitting the loan into two parts keeps the investment debt separate from your home loan. As an example, consider a Milton owner whose valuation shows $200,000 of usable equity above their current balance.

They refinance and take the extra $200,000 as a separate loan split. They keep their existing home loan balance in its own split. At the illustrative rate of 6.75% p.a., the new split costs about $1,125 a month on interest-only, or about $1,297 a month on principal and interest over 30 years. If they choose interest-only, the principal is not reduced during that period. When principal and interest begins, repayments rise because the same balance is repaid over a shorter remaining term.

The outcome is a $200,000 deposit and costs fund, with the investment debt sitting in its own split. The ATO says interest is deductible based on what the borrowed money is used for, not what the home is worth. Keeping the splits separate makes that use easier to show. Your accountant should confirm how this applies to you. These figures are illustrative only, so use our borrowing capacity page to test your own numbers.

What Are the Pros of Using Home Equity to Invest?

The main advantage is that you can buy sooner without saving a full deposit in cash. Your existing home does the work of the deposit.

You may also be able to review your interest rate and loan features while you refinance. Some owners add an offset account or redraw facility to the home loan portion, which can help with cashflow. If your fixed rate period is ending, a refinance can bundle the review and the equity release into one application. Our fixed rate expiry page explains your options at that point.

What Are the Cons and Costs of a Refinance for Investment?

The main downside is that you carry more debt, and both properties can be affected if repayments fall behind. Your home becomes security for the investment loan.

Costs depend on the lender and your loan. Moneysmart lists possible costs such as a discharge fee, an application fee and, on a fixed rate loan, a break fee. If your equity is below 20 per cent, lenders mortgage insurance might apply. Interest-only repayments are lower early on but do not reduce what you owe during that period. If the investment property falls in value or sits vacant, you still repay the full amount.

A lender must also check that the loan suits you. Under APRA's rules, lenders assess whether you could still afford repayments at an interest rate 3 percentage points above the loan rate. That test can limit how much you can borrow. Our investment loans team can show you how different lenders treat this.

Tax and Negative Gearing: What to Raise With Your Accountant

Interest on the part of the loan used to buy a rental property is generally deductible, but interest on any part used for private purposes is not. If you borrow extra for a holiday or car in the same refinance, your interest must be apportioned. The ATO also says that once the ratio is set, it applies for the life of the loan, and you cannot repay only the private portion.

Negative gearing rules now depend on when you buy. Net rental losses on residential properties held at 7:30pm AEST on 12 May 2026 can still be deducted against other income until the property is sold. Eligible new builds acquired after that time can also keep this treatment. From the 2027-28 income year, losses on established residential properties acquired after that time can only be deducted against residential property income. These are general points only, so speak to your accountant before you commit.

Is Your Current Loan Ready for a Refinance?

Your loan is ready when your repayment history is clean and the numbers show the refinance costs less than it saves. A loan health check reviews your rate, features and equity before you apply.

If you are considering a purchase, it also helps to speak with a local broker. Our Milton mortgage broker page has more on how we help owners in the area. Call one of our team or book an appointment at a time that works for you, and we will work out whether releasing equity suits your situation.

Frequently Asked Questions