If you own your home, you may be able to refinance and use some of its equity as the deposit on an investment property. The catch is that more debt means higher repayments, and the way you structure the loan changes how much interest you can claim at tax time.
This guide is written for police officers who work irregular rosters and want a clear way through. It covers how equity works, the tax trap to avoid, and how lenders look at a refinance that adds debt.
How Do You Refinance to Access Equity for Investment?
You refinance by replacing your current loan with a new, larger one and taking the extra as cash or a separate loan. That extra amount can fund the deposit and costs on an investment property.
Equity is the gap between what your home is worth and what you owe. Lenders set how much of the value they will lend against, and that limit depends on your lender and your situation. A property valuation sets the starting point, so the figure you have in mind may change once a valuer has been through. Our equity release loans for police officers page explains the options in more detail.
The main trade-off is that you borrow more against your home. If the investment property falls in value or sits empty, your home is still the security for that extra debt.
Why Loan Structure Matters for Your Tax Deductions
The ATO looks at what you spent the borrowed money on, not what the loan is secured against. Interest on money used to buy a rental property can be deductible, but interest on money used for private things cannot.
That is why it pays to keep investment borrowing separate from the rest of your home loan. If you mix private and investment amounts in one loan, the interest has to be apportioned. The ATO says the resulting ratio applies for the life of the loan, and principal repayments follow the same ratio. You cannot choose to pay down only the private part.
Consider a police officer who refinances to release equity. She takes a separate loan split for the deposit and buying costs on a rental, and keeps her home loan balance as it was. At tax time, the interest on the investment split lines up with its purpose, and her records show where each dollar went. Had she used part of the cash for a car or a holiday, that part would not be deductible and she would need to apportion. The outcome is cleaner records and fewer arguments with the ATO. Please speak to your accountant about how this applies to you, as tax outcomes depend on your own circumstances.
Keep documents for the refinance and for any extra amounts added to the loan, along with a note of what each amount was used for.
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Can You Still Negatively Gear After a Refinance?
Negative gearing rules depend on when you acquired the property and whether it is a new build, not on when you took out a loan. For established residential properties bought after 7:30pm AEST on 12 May 2026, net rental losses from the 2027-28 income year can only be deducted against residential property income.
Properties you held at that time keep the earlier treatment until sold. Eligible new builds acquired after that time can also keep deducting losses against all income. If you are restructuring loans on a property you already own, check with your accountant how the negative gearing rules apply to you.
If you are weighing up a first purchase, our buying your first investment property page is a good next stop.
How Do Lenders Assess a Refinance That Adds Debt?
Lenders must check that the new loan suits your needs and that you can afford it without substantial hardship. Because you are borrowing more, expect a full assessment of your income, spending and existing debts, not just your repayment history.
Banks must test whether you could still meet repayments if rates were 3 percentage points higher than the loan rate. That test applies to new borrowers, so a refinance with a new lender can be assessed more closely than staying put. Our borrowing capacity page shows what affects the number.
If your income includes overtime, shift loadings or allowances, how a lender counts them can differ. A broker can compare how different lenders treat overtime and allowances before you apply, which may reduce the chance of an unsuitable application. Ask about any broker fees or commissions.
What Does a Refinance Cost You?
A refinance can cost you a discharge fee, an application fee and, on a fixed loan, a break fee. If you have less than 20 per cent equity after borrowing, you may also pay lenders mortgage insurance.
Exit fees on residential loans taken out on or after 1 July 2011 are prohibited, but break fees and discharge fees are not. If your fixed rate is ending, a refinance may cost less because there is no break fee to pay. Our fixed rate expiry page covers the timing.
ASIC guidance says a refinance should produce overall savings or better meet your goals, once all fees are counted, including broker fees. A new loan that costs more than it saves is not a good move.
Worked Example: Repayments on a Larger Loan
Borrowing more raises your repayments, so test the numbers before you commit. This example uses an illustrative rate of 6.75% p.a. and is not a current offer.
Consider an officer who borrows an extra $100,000 against their home over 30 years. At 6.75% p.a. with principal and interest, repayments on that extra amount come to about $649 a month. If the investment loan is interest-only at the same rate, the interest is about $563 a month for the interest-only period. Then repayments rise once principal and interest start, calculated over the shorter remaining term.
Against that, the officer weighs rent, running costs and the tax position. If rent does not cover the loan and costs, they fund the gap from their pay, so it needs to fit their roster pay. Interest-only costs less early on, but you do not reduce the loan during that period. Our interest only loans for police officers page explains how it works.
The Investment Loan Refinancing for Police Officers page is worth a read if you already own a rental.
Get Your Numbers Checked Before You Move
A short loan review shows how much equity you may be able to use and whether the move stacks up. You can start with our loan health check.
Call one of our team or book an appointment at a time that works for you, including around your shifts. We will compare lenders and map the options for your home loan, whether you are a first-time investor or growing a portfolio.
Frequently Asked Questions
Can I use my home equity to buy an investment property?
Often yes, by refinancing to a larger loan or adding a separate loan split. How much you can use depends on your lender, your valuation and your income.
Is the interest on equity I borrow tax deductible?
It depends on what you spend the money on. Interest on funds used to buy a rental can be deductible, but not on private spending, so speak to your accountant.
Does a refinance have fees?
It can. Common costs include discharge and application fees, a break fee on a fixed loan and possibly lenders mortgage insurance if your equity is under 20 per cent.
Will lenders look closely at my income if I refinance?
Yes, especially if you borrow more. Lenders check your income, spending and debts, and may treat overtime and allowances differently.
