Should You Use Equity or Savings to Buy an Investment Property?
If you own a home and you’re ready to buy your first investment property, you have two main paths: draw on the equity you’ve built up in your existing property, or put down a cash deposit from savings. Both work. The right choice depends on your current financial position, your cash flow goals, and how you want to structure your loans going forward.
With the RBA holding the cash rate at 4.35% following three consecutive increases earlier in 2026, the rate environment is a real part of that decision. Higher borrowing costs change the cash flow maths for both approaches, and the pause in rate movement gives investors a more stable window to model their numbers.
What Is the Difference Between Equity and Savings?
Equity is the difference between what your property is currently worth and what you still owe on it. If your home is valued at $800,000 and your loan balance is $500,000, you have $300,000 in equity. Savings are accumulated cash, money set aside in an account that’s ready to use as a deposit. Both can fund the deposit on an investment property. The key difference is where the money comes from and what using it costs you.
Using Equity | Using Savings | |
Source of funds | Your existing property | Your cash reserves |
How you access it | Refinancing or equity loan | Direct from your account |
Impact on home loan | Increases total debt | Home loan stays unchanged |
Impact on cash reserves | Cash stays intact | Cash reserves reduce |
Best for | Strong equity position, want liquidity | Prefer separate loan structures |
How Does Accessing Equity Work?
The equity you can actually access is called usable equity, and it’s less than your total equity figure. Most lenders will allow you to borrow up to 80% of your property’s current value without triggering Lenders Mortgage Insurance (LMI). LMI is a one-off insurance premium lenders charge when your deposit is less than 20% of the property’s value, it protects the lender, not you.
Your usable equity is calculated as follows: (current property value x 80%) minus your outstanding loan balance.
For a property worth $800,000 with a $500,000 loan: ($800,000 x 80%) = $640,000 minus $500,000 = $140,000 in usable equity.
That $140,000 could be used as the deposit and purchase costs on an investment property.
The process typically works in four steps:
- Your broker orders a valuation. The lender needs to confirm your current property value before calculating your available equity.
- Your loan is refinanced or an equity loan is set up. The lender increases the borrowing against your existing property, releasing equity as accessible funds.
- You use the released equity as your deposit. The funds are applied to the investment purchase.
- A separate investment loan is arranged. Keeping the investment loan distinct from your home loan is important for tax clarity and future portfolio flexibility.
For a deeper look at how this works in practice, see our article on how to use your home equity to buy an investment property.
How Does Using Savings Work?
Using savings is more straightforward. You contribute a cash deposit, typically 10% to 20% of the purchase price, directly from your own funds. If your deposit is less than 20%, you’ll likely pay LMI on the investment loan.
The advantage is structural clarity: your home loan stays exactly as it is, your existing Loan-to-Value Ratio (LVR), the percentage of the property’s value you’re borrowing, doesn’t change, and you’re not increasing the debt secured against your family home. Some investors prefer this approach because it keeps their lending positions cleanly separated from day one.
The trade-off is liquidity. Drawing down savings reduces your cash buffer, which matters if you need funds for maintenance, repairs, or other opportunities. Depending on your savings balance, this approach may also mean waiting longer before you’re ready to enter the market.
Understanding LVR in more detail is worth the time before you decide, our guide on understanding LVR in home loans is a good starting point.
How Have Recent Rate Rises Changed the Calculation?
At 4.35%, the RBA’s cash rate is back at its prior cycle peak, the result of three consecutive increases in February, March, and May 2026. For investment borrowers, that affects cash flow in a direct way. Higher interest rates mean higher repayments on both your home loan and your investment loan, which directly influences whether your investment property is positively or negatively geared.
Negative gearing occurs when your rental income is less than your loan costs and other property expenses. While the interest portion is generally tax deductible, the cash flow shortfall is real and needs to be manageable month to month.
Using equity to fund an investment purchase increases your total debt, which increases your total interest costs. Using savings avoids that additional debt, but depletes a cash reserve that could otherwise provide a buffer.
The June 2026 hold, the first pause after three consecutive increases, gives investors a clearer picture. As the RBA noted in its June statement, “following the three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were, and there are signs that the economy is slowing as expected.” A paused rate means you can model your cash flow with a known number, rather than a moving one. The next decision is due 11 August 2026.
Which Approach Is Right for You?
There’s no universal answer, but your financial position and goals tend to point in one direction.
Equity tends to make more sense when:
- You have a strong equity position and a healthy LVR on your existing property
- You want to keep your cash reserves intact for renovations, emergencies, or other opportunities
- You want to move quickly into the market without waiting to accumulate a separate deposit
- Your income and tax position make the additional interest on a larger loan tax-efficient
Savings tend to make more sense when:
- You want a clean, separate loan structure from day one
- Your existing LVR is already close to 80%, leaving limited usable equity without triggering LMI
- You prefer to limit your total borrowing exposure in a higher rate environment
- You have sufficient cash and want to avoid increasing debt against your family home
The most important variable is loan structure. Whether you use equity or savings, how your loans are set up affects your tax position, your flexibility to grow your portfolio, and your long-term strategy. For more on how equity-based structuring works, see our piece on the 80/20 borrowing structure.
How a Broker Structures Investment Lending
Investment lending has different requirements from owner-occupier lending. LVR limits can be tighter, interest-only periods are more common for tax efficiency, and lenders assess rental income differently when calculating your serviceability.
A broker who works regularly with investors knows which lenders on the panel have the most flexible policies, particularly for borrowers who are simultaneously carrying an owner-occupier loan and adding an investment loan on top. Getting the structure right from the start avoids complications when you want to expand your portfolio further down the track.
According to MFAA data, mortgage brokers now write 74.1% of all new residential home loans in Australia. For investment lending specifically, the complexity of structures and lender policies makes independent advice particularly valuable, the right structure from the beginning can make a significant difference to your cash flow and tax position over time.
You can explore your investing in property options here, use our refinance calculator to model the impact of releasing equity, or book a free conversation with our team to talk through which approach fits your numbers.
Frequently Asked Questions
Usable equity is the portion of your property’s equity that a lender will allow you to borrow against, typically calculated as 80% of your property’s current value, minus your remaining loan balance. For example, if your property is worth $800,000 and you owe $500,000, your usable equity is $140,000. This is the amount available to use as a deposit on an investment property without paying LMI.
It depends on your financial position, your cash flow, and how you want to structure your loans. Equity lets you act without depleting savings; using cash savings keeps your home loan unchanged and reduces your total debt. A broker can model both options against your specific numbers, income, and tax situation to help you decide.
Accessing equity increases the total debt secured against your existing property, which means your repayments on that loan will be higher. If property values fall or your circumstances change, having a higher debt level reduces your buffer. That said, using equity to build a portfolio is a well-established strategy, the key is structuring it correctly and ensuring the cash flow is manageable. Your broker can help you assess your risk position.
If your LVR is already at or near 80%, your usable equity is limited. Accessing more could require paying LMI on your home loan, which may still make sense depending on the numbers, but needs to be factored in. Waiting until your property value increases or your loan balance reduces further is a common alternative. Your broker can calculate your exact position.
Negative gearing is when your rental income is less than your investment loan repayments and other property expenses. The shortfall is generally tax deductible, which reduces your taxable income for that year. However, you still need to cover the cash flow gap each month, which is why serviceability and accessible cash reserves matter when structuring investment lending.
Disclaimer
This article is general information only and does not constitute financial advice. Your personal circumstances may differ. Talk to your broker about your specific situation.
