Using Equity to Buy Your Next Property
Refinancing to release equity means increasing your existing home loan to access the value locked in your property. The difference between what your home is worth and what you owe becomes available funds you can use for another purchase.
For properties around Montrose, particularly along Mount Dandenong Tourist Road and the surrounding hillside estates, values have grown substantially over the past decade. If you bought for $650,000 and your property is now worth $900,000, and you owe $450,000, you may have access to a portion of that $450,000 equity.
Lenders typically allow you to borrow up to 80% of your property value without needing mortgage insurance, though some will go to 90% or 95% with additional costs. At 80% on a $900,000 property, you could borrow $720,000. With $450,000 still owing, that gives you $270,000 in usable equity, though the exact amount depends on your serviceability and the lender's assessment.
What Lenders Actually Look at When You Refinance for Cash
Lenders assess two things when you want to extract equity: your loan to value ratio and whether you can service the increased loan amount. The first is straightforward maths. The second depends on your income, existing debts, and living expenses.
Consider someone in Montrose earning $120,000 annually who wants to access $200,000 to buy an investment property. Their current loan sits at $380,000 on a property valued at $780,000. The LVR after refinancing would be around 74%, which sits comfortably under the 80% threshold. But if their existing debts include a car loan and credit cards totalling $35,000, the lender will factor those repayments into the serviceability calculation alongside the new, higher mortgage.
We regularly see clients who assume equity access is automatic if the property value supports it. It's not. Your income needs to cover the additional borrowing, and lenders apply assessment rates above actual interest rates to stress-test your capacity.
How Montrose Properties Affect Your Borrowing Position
Montrose sits in the Yarra Ranges, where property types vary from timber homes on acreage to more recent brick builds in established subdivisions. Lenders view properties differently depending on location, land size, and construction type.
A home on a bushfire-prone block with a BAL rating may require specific insurers, and some lenders restrict how much they'll lend against properties in high-risk zones. Similarly, homes on larger acreage blocks over two hectares are treated differently to standard residential properties. If you're looking to refinance your home loan on a property that sits outside typical suburban parameters, the lender's valuation and willingness to lend can shift.
This matters when you're trying to tap into equity because the amount available depends on what the lender values your property at, not what you believe it's worth or what similar properties sold for last month.
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Using Released Equity for Investment Property Versus Upgrading
How you plan to use the equity changes the loan structure and tax treatment. If you're buying an investment property, the portion of your loan used for that purchase may be tax-deductible, while the portion tied to your own home is not. Keeping the two amounts clearly separated, often through split loans, makes tax time far less complicated.
If you're using equity to upgrade your own home, the funds are typically added to your existing owner-occupied loan, and you'll be looking at whether to fix or keep the additional amount on a variable rate depending on your risk tolerance and where rates are sitting.
In a scenario where someone in Montrose wants to keep their current home and buy a second property in Croydon or Ringwood, they might access $180,000 in equity as a deposit. That becomes part of a new loan structure where the original loan remains on the Montrose property and a new investment loan is taken for the second property. The equity release happens through refinancing the first property to a higher amount, and those funds are then used as the deposit and costs for the purchase.
When Refinancing to Access Equity Doesn't Work
Sometimes the numbers don't support what you want to do. If your income has dropped, you've changed jobs recently, or you've taken on new debts, serviceability can block access even if the equity exists on paper.
Another situation we see involves couples where one partner is planning to reduce work hours or take parental leave. Lenders assess based on current and projected income, so if you're planning a change in the next six months, it's worth addressing that before you apply rather than after the assessment comes back declined.
Properties that don't value as expected also create issues. If you believe your Montrose home is worth $850,000 but the lender's valuer comes back at $780,000, your available equity drops by $70,000 immediately. Valuations aren't always aligned with recent sales, particularly in areas with varied property types and sizes.
What Happens After You Access the Equity
Once the refinance settles and the additional funds are available, they sit in your offset or are transferred as directed. If you're using them for a property purchase, timing matters. Settlement dates need to align, and having funds sitting idle in an offset account while you search for the right property means you're paying interest on a higher loan without the benefit of the investment yet.
The other consideration is how the increased loan amount affects your ongoing repayments. Borrowing an additional $200,000 increases your monthly commitment, and if interest rates shift, that repayment can move significantly. Understanding your borrowing capacity before you commit to a purchase using equity means you're not stretching further than your income allows.
Call one of our team or book an appointment at a time that works for you
If you're considering using equity in your Montrose property to buy another home or investment, the starting point is understanding what you can actually access and whether your income supports the additional borrowing. We work through the numbers with you, explain what different lenders will and won't accept, and make sure the loan structure fits what you're trying to achieve. You can call us directly or book an appointment that suits your schedule.
Frequently Asked Questions
How much equity can I access from my Montrose property?
Lenders typically allow you to borrow up to 80% of your property value without mortgage insurance. The usable equity is the difference between that 80% figure and what you currently owe, but the final amount also depends on whether your income can service the higher loan.
Can I use equity from my home to buy an investment property?
Yes, you can refinance to release equity and use those funds as a deposit for an investment property. The portion of your loan used for the investment may be tax-deductible, so keeping it separate through a split loan structure is usually recommended.
What if my property doesn't value as high as I expected?
Lender valuations don't always match recent sales or your expectations, particularly in areas with varied property types like Montrose. If the valuation comes back lower, your available equity reduces immediately, which can affect how much you can borrow.
Do lenders treat bushfire-prone properties differently when refinancing?
Yes, properties with BAL ratings or located in high bushfire risk zones may face lending restrictions. Some lenders limit how much they'll lend against these properties, which directly affects how much equity you can access.
What happens if my income has changed since I first bought my home?
Lenders reassess your income and debts when you refinance to access equity. If your income has dropped or you've taken on new debts, you may not be able to borrow the additional amount even if the property value supports it.
