Equity can be one of the most powerful tools for building long-term wealth — but it’s also one of the most misunderstood. Many homeowners in Australia want to know how to use home equity effectively — whether it’s for renovations, investing, or consolidating debt. What many people don’t realise is that using equity isn’t free money — it’s still a loan, and it must be structured wisely, especially when it comes to lending policy, tax implications, and future financial goals.
Understanding how to use home equity can unlock new financial opportunities — from funding a renovation or buying a second property, to consolidating high-interest debts. This guide breaks down how equity works, how much you can access, the difference between owner-occupied and investment equity, and how to use it strategically without hurting your borrowing power or tax position.
Equity is the difference between your property’s current value and what you still owe the bank.
🧮 Example:
Your home is worth $900,000, and you owe $400,000 on your mortgage.
Your equity = $900,000 – $400,000 = $500,000
But that doesn’t mean you can access all $500,000. Banks typically let you borrow up to 80% of your property’s value, minus your loan balance.
🧮 Borrowable equity example:
80% of $900,000 = $720,000
$720,000 – $400,000 (existing loan) = $320,000 usable equity
Both allow you to access equity — but they are treated differently.
Often used for renovations, home improvements, debt consolidation, or investing
Withdrawals are usually not tax-deductible, unless used for investment purposes
Can be used to purchase another investment or cover expenses related to income-producing activities
Interest may be tax-deductible, but only if used for investment
Yes.
When you “use equity,” the bank lends you more money — either:
As an increased home loan, or
Through a separate split loan account
It’s not your cash unless it’s released as a loan, and it requires:
A new property valuation
Sufficient income to service the additional debt
✅ So yes — you must meet income requirements to access equity, just like applying for a normal loan.
| Purpose | Tax Deductible? | Notes |
|---|---|---|
| Buying an investment property | ✅ | Interest usually deductible |
| Renovating your own home | ❌ | Not deductible unless for a rental |
| Debt consolidation | ❌ | Interest not deductible — still needs income assessment |
| Buying a car or holiday | ❌ | Possible, but not tax-friendly use of equity |
| Emergency fund | ❌ | You can hold it in redraw/offset — but interest applies if used |
| Investing in shares or super | ✅/❌ | Deductibility depends on structure — seek tax advice |
| Paying off owner-occupied loan from investment equity | ❌ | Generally not deductible — this is personal use |
If you’re using equity to extend your house or add a room:
You may need council approval (DA or CDC) — especially for structural changes
If not approved or documented, a valuer may not count the full value increase in future valuations
Always check with a builder + council before starting
Here’s where it gets tricky. It’s not just about what you borrow — it’s how you use the borrowed funds that affects tax.
If you use equity from your home to buy an investment property, the interest on that equity loan split may be tax-deductible
If you withdraw equity from your investment property to pay down your home, the interest is not deductible
The purpose of the loan, not the property it’s secured against, determines deductibility
🧠 Pro Tip: Always keep investment and personal borrowings in separate loan splits to avoid mixed-purpose loans — this makes tax time easier.
In most cases:
You cannot use borrowed equity funds to contribute directly to your personal super account.
However, using equity to invest via a Self-Managed Super Fund (SMSF) might be possible via Limited Recourse Borrowing Arrangement (LRBA) — but it’s complex, and requires professional advice.
If you’ve paid off a good portion of your home and want to use equity to invest, here’s what to think about:
✅ Is your income stable enough to handle higher repayments?
✅ Have you factored in interest rate rises?
✅ Do you have an emergency buffer in place?
✅ Are your investment goals clear — are you chasing cash flow or capital growth?
✅ Are you getting tax advice before redrawing?
If you’d like to explore more about equity release options like reverse mortgages, you can read more on the MoneySmart website by ASIC.
Accessing equity isn’t a quick cash grab — it’s a strategic financial move that needs the right structure. Used wisely, it can help you grow wealth, invest earlier, or consolidate debt, but only if you’ve considered serviceability, tax, and loan purpose.
At Kanova Loans, we help you understand how much equity you can access, what it will cost, and whether it aligns with your goals — from upgrading your home to building an investment portfolio.
Book a free strategy call with Anitha Varghese today »
Disclaimer: This article is for general information only and should not be considered financial or tax advice. Please speak to your mortgage broker, accountant, or financial advisor for tailored guidance.
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Kanova Loans helps Australians access home, car, and commercial finance through expert guidance and top lender comparisons — led by trusted senior mortgage broker Anitha Varghese.
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