Home equity provides access to substantial funds that can be used for various types of investments, including real estate, stocks, or business ventures. If you’ve paid down a significant portion of your mortgage or if property prices have increased, you may be sitting on a considerable amount of equity.
At Stryve Finance, we help homeowners tap into their equity in a smart and informed way. Whether you want to buy an investment property, invest in shares, or contribute to your superannuation, this guide will provide everything you need to know. We’ll explore how home equity works, the options available, the risks involved, and how you can access and use your equity to make the most of your financial situation.
What Is Home Equity?
Home equity is the difference between your property’s current market value and the amount you still owe on your mortgage. For example, if your home is worth $500,000 and your outstanding loan is $300,000, your equity is $200,000. Equity can grow over time as you make regular repayments and as your property value increases (e.g., an average appreciation of around 5% per year).
The more equity you build, the more you can potentially borrow against—useful when investing in property, shares, or other opportunities. In short, home equity is an asset that can help you grow wealth when used strategically.
What is Usable Equity and How Is It Calculated?
Usable equity is the portion of your home’s equity that lenders let you borrow against. Even if you have substantial equity, lenders generally cap access at up to 80% of your property’s value—this is guided by the Loan-to-Value Ratio (LVR). For example, if your home is valued at $600,000 and your loan balance is $350,000, you can typically borrow up to 80% of $600,000 = $480,000.
After subtracting your existing mortgage, your usable equity would be $130,000. Keep in mind that not all equity may be available—lenders also assess your income, expenses, and overall financial position when determining borrowing capacity.
Usable Equity Breakdown
Example Calculation
- Home Value: $600,000
- Mortgage Owed: $350,000
- Available for Borrowing (80% LVR): $480,000
- Usable Equity: $480,000 − $350,000 = $130,000
How to Use Home Equity to Invest
After determining how much usable equity you have, consider your financial goals, risk tolerance, and preferred investment strategy—whether it’s property, shares, or other assets.
Investment Strategies Using Home Equity
Here are the most common ways to use home equity to invest:
1. Invest in Property
Using your home equity to purchase an investment property is one of the most popular strategies in Australia. Key benefits include potential capital growth and rental income. By borrowing against your home equity, you can use the funds as a deposit for an investment property and build a portfolio that generates passive income.
Tip
When considering property, don’t overlook hidden costs: maintenance, property management fees, insurance, and taxes. These reduce net returns—factor them into your strategy.
2. Invest in Shares or Managed Funds
If property isn’t your preference, using equity to invest in shares or managed funds can diversify your portfolio. Whether it’s individual stocks, ETFs, or a broader managed fund, this approach offers access to potentially higher returns with greater liquidity than property.
3. Contribute to Your Superannuation
Boosting your superannuation is another way to put home equity to work. With voluntary contributions, you can grow retirement savings while benefiting from tax advantages—especially useful if you want to maximise long-term returns and reduce taxable income.
4. Start a Business
Equity can provide the funds to start or grow a business. This carries higher risk but can be rewarding with a solid plan and execution. Accessing home equity lets you fund opportunities without selling other assets or seeking different finance types.
If you’re ready to take the next step in property investment, our Investor Loans guide can help you understand funding options.
Tip
Think long-term when investing with equity. Ask: How might this investment grow over the next 10–20 years? Short-term speculation can be risky and counterproductive to building lasting wealth.
Pros and Cons of Using Home Equity for Investment
Using home equity to fund investments has advantages, but it’s not without risks. Understanding both the pros and cons will help you make a more informed decision.
Pros
- Access to Capital: Borrowing against your equity lets you access a large lump sum without selling your home.
- Lower Interest Rates: Property-secured loans typically have lower rates than unsecured options like personal loans or credit cards.
- Tax Benefits: Interest on loans used for income-generating investments may be tax-deductible (seek advice for your circumstances).
Cons
- Increased Debt Burden: You’ll have higher repayments—make sure you can comfortably manage them, especially if returns are delayed.
- Risk of Losing Your Home: Your property is collateral; missed repayments could put it at risk of foreclosure.
- Market Volatility: Property and share markets can fall, potentially reducing the value of your investment—especially if equity is negative.
Example Scenarios
Let’s explore a couple of real-life scenarios to see how using home equity for investment can work.
Example 1: Buying an Investment Property
John owns a home worth $700,000 and has a mortgage of $400,000. His usable equity is $160,000. He uses $120,000 as a deposit on an investment property and allocates another $40,000 for stamp duty and other costs—allowing him to purchase a $600,000 investment property.
Example 2: Investing in Shares
Sarah’s home is valued at $500,000, with $250,000 owing on the mortgage. With $150,000 in usable equity, she invests $100,000 in Australian shares. Over time, the shares appreciate, providing returns while she continues paying down her mortgage.
Tax Considerations and ATO Guidelines
When using home equity for investments, be mindful of the tax implications. The interest on investment loans is generally tax-deductible, meaning you can claim back interest payments on property or share investment loans—provided the borrowed funds are used to generate assessable income.
Additionally, any capital gains from selling an investment property may be subject to capital gains tax (CGT). Holding an asset for more than 12 months may make you eligible for the CGT discount.
Keep your investment-related finances separate from personal expenses and maintain detailed records to comply with ATO guidelines. Consider seeking advice from a qualified tax professional to understand how the rules apply to your situation.
Tip
Stay up to date with ATO guidance on home-equity and investment income. Professional tax advice can help you maximise deductions and avoid costly mistakes.
Who Should (and Shouldn’t) Use Equity to Invest?
Using home equity to invest can be a great strategy for some—but it isn’t suitable for everyone. Consider your overall financial position before moving forward.
Ideal Candidates
- Homeowners with significant equity and a stable, predictable income.
- Individuals focused on long-term wealth creation and comfortable with investment risk.
- Those with a clear investment plan and a financial buffer to absorb potential losses.
Cautionary Advice
- If you carry high personal debt, be cautious—taking on more debt can increase financial stress.
- Near retirement? You may want to avoid using equity to invest, especially if there’s limited time to recover from losses.
- Without an emergency fund, consider reserving some equity for unexpected expenses rather than investing it all.
Stryve’s Expert Guidance on Equity Investing
At Stryve Finance, we help Australians unlock the power of their home equity to invest smartly. Our expert team can help you:
- Assess your available equity and understand your borrowing capacity.
- Explore the best lending options across Australia’s major banks and specialist lenders.
- Create a personalised investment strategy aligned with your goals.
- Provide ongoing support as your investment grows.
If you’re ready to make your home equity work harder for you, reach out to us today for a free consultation. Our team will help guide you through the process and ensure you’re on the right track toward successful investing.
FAQs
1. Is using home equity to invest a good idea?
It can be—if you have a solid strategy and understand the risks. Leveraging equity can help build wealth, but there’s always a level of risk involved.
2. Can I use equity to buy shares in Australia?
Yes. Many Australians use home equity to buy shares and ETFs to diversify their investments, which generally offer greater liquidity than property.
3. How much equity do I need to invest in property?
Typically, you’ll need a 20% deposit to avoid Lenders Mortgage Insurance (LMI). Your usable equity determines how much you can borrow for the property.
4. Is interest on an equity loan tax-deductible?
Generally yes in Australia, provided the borrowed funds are used for income-generating assets (e.g., property or shares). Seek personal tax advice.
5. What’s the difference between equity release and refinance?
Equity release accesses available equity via a top-up or line of credit, while refinancing replaces your current mortgage to access more funds or a lower rate.
Conclusion
Leveraging your home equity to invest can be a powerful wealth-building tool when done strategically. Whether you’re looking to purchase property, invest in shares, or contribute to your super, understanding your options and working with experts like Stryve Finance can help ensure a successful investment journey. Book a free consultation today, and let's start planning your next move.
Dylan Bertovic is the Director and Senior Finance Broker at Stryve Finance, specialising in non-traditional lending solutions. He helps clients across Australia with tiny home loans, construction finance, equipment and asset lending, refinancing, and investor loans. With deep expertise in self-employed and renovation mortgages, Dylan is known for crafting tailored strategies that get results
