The easiest way to use equity for a second home

You already own a home and you've been paying it down for a while. That equity sitting in your property can become the deposit for your next one.

Using home equity to fund a second purchase means you don't need to wait years to save another 10% or 20%. You borrow against the value you've built in your current place and use that to fund the deposit and costs on the next property. It works whether you're after an investment or somewhere to move into.

How Equity Works When You Buy a Second Property

Equity is the difference between what your property is worth and what you owe on it. If your property is worth $600,000 and you owe $400,000, you have $200,000 in equity. Lenders will let you access some of that equity, usually up to 80% of your property's value, to use as a deposit elsewhere.

Consider someone who bought several years ago and has been making regular repayments. Their property has increased in value and their loan balance has come down. They want to buy an investment property but don't have cash savings set aside. A broker runs the numbers and finds they can access $80,000 in usable equity. That covers the deposit and purchase costs on the next property without touching their offset account or dipping into savings they need for other things.

Borrowing Capacity With Shift Work and Overtime

Your borrowing capacity depends on your income, existing debts, and living expenses. For police officers, shift penalties and overtime can make up a decent portion of your take-home pay. Most lenders will include a percentage of that overtime if it's consistent, usually between 50% and 100% depending on how long you've been receiving it and whether it shows up regularly on your payslips.

If you're rostered on shifts that include penalty rates, make sure your broker knows. Some lenders are more willing than others to include those loadings, and that can add tens of thousands to your borrowing power. In our experience, officers with two or three years of documented shift work get better treatment than those who've only recently moved into a role with penalties.

How Much Equity Can You Actually Use

Lenders typically let you borrow up to 80% of your property's current value without paying Lenders Mortgage Insurance. If your home is worth $650,000, that means your total borrowing across all loans secured by that property can't exceed $520,000. If you owe $380,000, you have $140,000 in accessible equity before you hit that threshold.

That $140,000 doesn't all go toward the deposit. You'll need to set aside funds for stamp duty, conveyancing, building and pest inspections, and any other purchase costs. Depending on where you're buying and what the property costs, those costs can range from $15,000 to $40,000 or more. Your broker should walk through the numbers with you so you know exactly how much is left over for the deposit itself.

Setting Up the Loan Structure

When you use equity to buy an investment property, the loan structure matters. You'll generally keep your existing home loan in place and take out a new loan for the investment purchase. Some borrowers set up a separate split or sub-account linked to their original property to access the equity, while others refinance the whole thing and pull the equity out at the same time.

If the second property is an investment, keep the loans separate. That way the interest on the investment loan is tax-deductible and the interest on your owner-occupied loan isn't mixed in. If you refinance everything into one big loan, you lose that clarity and it becomes harder to claim the deduction correctly.

Pre-Approval Before You Start Looking

Get pre-approval sorted before you make any offers. Pre-approval tells you what you can borrow and gives you a clear budget when you're looking at properties. It also means you can move quickly when you find something that works.

For police officers using equity, pre-approval usually takes a few days once your broker has your payslips, loan statements, and a rough idea of your property's current value. If you've recently refinanced or taken out other credit, mention that upfront. It affects how much equity the lender will let you access and whether they'll approve the second loan at all.

Buying an Investment or a New Home to Live In

Using equity works whether you're buying an investment property or planning to move into the new place and rent out your current home. The difference is in how the loan is classified. If you're moving into the new property, that becomes your primary residence and the loan is owner-occupied. If you're keeping your current home as your primary residence and buying something to rent out, the new loan is an investment loan.

Investment loans generally have slightly higher interest rates than owner-occupied loans, but the interest is tax-deductible. If you're planning to move into the new property and turn your current place into an investment, talk to your broker and your accountant before you settle. The timing of when you move and when you start claiming deductions can affect your tax position.

Lenders Mortgage Insurance and Police Officer Waivers

If you borrow more than 80% of a property's value, you'll usually pay Lenders Mortgage Insurance. But several lenders offer LMI waivers for police officers, which means you can borrow up to 90% or sometimes higher without paying that insurance premium. That waiver applies to your total lending, so if you're using equity and your combined borrowing pushes you over 80%, the waiver can save you thousands.

Not all lenders offer the same waiver terms. Some will extend it to second properties, others limit it to your first home or owner-occupied purchases only. Your broker should know which lenders will apply the waiver to your situation and whether it's worth switching lenders to access it.

What Happens If Property Values Drop

If property values fall after you take out the second loan, your equity position tightens. Lenders don't usually ask you to pay down the loan unless you're trying to refinance or borrow more, but it does limit your options if you need to access more equity later.

In a scenario where someone buys using equity and values drop by 10%, they might find themselves unable to refinance or access further funds until values recover or they pay down more of the loan. It's not common, but it's worth understanding before you borrow close to your maximum.

Offset Accounts and Loan Repayments

If you have an offset account linked to your current home loan, the balance in that account reduces the interest you pay. When you take out a second loan, consider whether you want an offset account on that loan as well. For investment loans, an offset can be useful if you plan to build up a buffer, but don't park non-deductible savings in an offset linked to an investment loan if you still have an owner-occupied loan with a higher balance.

Your broker can help you structure the accounts so your savings are working in the right place. In our experience, officers with irregular rosters or overtime income prefer keeping a healthy offset balance so they can manage repayments during quieter pay periods without stress.

If you're ready to look at your equity position and work out what you can access, call one of our team or book an appointment at a time that works for you. We'll run the numbers and show you exactly what's possible without the sales pitch.

Frequently Asked Questions