What is Refinancing to Release Equity for Investment?

If you own property in Kingston and you've been paying your mortgage for a few years, you likely have equity sitting in your home that could fund a deposit on a second property.

Refinancing to release equity means increasing your home loan amount to access the difference between what you owe and what your property is worth. That cash can then be used as a deposit for an investment property, a holiday home, or even to help family onto the property ladder. The key is understanding how much you can borrow, what lenders will approve, and how the numbers work when you're servicing two loans instead of one.

How Equity Release Works Through Refinancing

You borrow more against your existing property by refinancing your current home loan, and the lender pays out the difference as cash. The amount you can access depends on your property's current value and how much you still owe. Lenders typically allow you to borrow up to 80% of your property value without paying lenders mortgage insurance, though some will go higher if you're willing to cover the extra cost.

Consider a homeowner in Kingston whose property is now valued at $650,000. They owe $320,000 on their mortgage. At 80% LVR, they could borrow up to $520,000. After paying out the existing $320,000 loan, they'd have $200,000 available to use. That's enough for a deposit on a second property plus costs, assuming they can service both loans.

What Lenders Assess When You Want to Borrow More

Serviceability is the main hurdle. Lenders need to be confident you can afford repayments on both your refinanced home loan and any new loan for the second property. They'll assess your income, existing debts, living expenses, and financial commitments. If you're planning to buy an investment property, rental income from that property may be included in the assessment, though lenders usually only count 70% to 80% of the expected rent to allow for vacancy periods and maintenance.

Your LVR also matters. Refinancing at 80% or below keeps costs down and improves your chances of approval. Going above 80% means lenders mortgage insurance, which can add thousands to your upfront costs and may limit which lenders will consider your application.

Kingston's Property Market and Equity Growth

Kingston sits just south of Hobart and has seen steady demand over recent years, particularly for homes near the Kingston Beach foreshore and within reach of schools and the Channel Highway retail precinct. Properties purchased five or more years ago in areas like Huntingfield or Blackmans Bay have generally increased in value, giving owners a solid equity position to work with.

If you bought in Kingston during a quieter period and your property has appreciated, refinancing lets you put that growth to work without selling. The equity you've built through a combination of mortgage repayments and rising property values becomes accessible capital.

Using Equity to Fund a Second Property Purchase

Once you've refinanced and released the equity, the funds are yours to deploy. Most people use the money as a deposit on the second property, keeping enough aside for stamp duty, conveyancing, and any immediate costs. If you're buying an investment property, you'll also want to budget for building and pest inspections, property management setup, and a buffer for early vacancies.

The structure of your loans matters. Some buyers keep the equity release as part of their main home loan and take out a separate loan for the investment property. Others split the lending so the investment portion is clearly quarantined, which can make tax time simpler if you're claiming interest as a deduction. A mortgage broker can help you model both approaches based on your situation and the lender's requirements.

Refinancing Costs and What to Budget For

Refinancing isn't without cost. Expect to pay for a property valuation, discharge fees on your current loan, application fees with the new lender, and possibly legal or settlement costs. These can add up to a few thousand dollars depending on your lender and loan size. Some lenders will roll these costs into the new loan, but that increases what you owe and the interest you'll pay over time.

If your current loan has a fixed rate and you're exiting early, you may also face break costs. If you're on a variable rate, discharge is usually more straightforward. Factor these expenses into your decision, particularly if you're refinancing to access a relatively small amount of equity.

What Happens if You Can't Service Both Loans

Lenders run stress tests during the approval process to ensure you can afford repayments even if interest rates rise. They'll typically assess your application at a rate higher than what you'll actually pay, often around 3% above the loan rate. If the numbers don't stack up under that scenario, the application won't proceed.

If you're self-employed, work casually, or have other debts like car loans or credit cards, serviceability becomes tighter. Paying down existing debts or increasing your income before applying can improve your position. In some cases, adding a co-borrower or guarantor may help, though this introduces additional responsibility and risk for that person.

Structuring Your Loans for Flexibility

Some homeowners choose to refinance into a loan with an offset account or redraw facility, giving them access to any extra repayments they make in future. Others prefer to fix part of the loan to lock in repayments on the equity portion while keeping the rest variable. The right structure depends on your plans for the second property, your risk tolerance, and how you prefer to manage cash flow.

If the investment property generates rent, parking that income in an offset account linked to your main home loan can reduce the interest you pay without affecting your ability to claim investment loan interest as a tax deduction. Your accountant and broker should work together on this to make sure the structure aligns with your tax position.

When Refinancing to Release Equity Makes Sense

This strategy works when you have enough equity to fund the deposit, your income can support both loans, and the investment or second property aligns with your financial goals. It's particularly useful if you want to build a property portfolio without waiting years to save another deposit, or if you're helping adult children into the market and want to retain ownership.

It's less suitable if your equity position is marginal, your income is uncertain, or you're stretching serviceability to the limit. Owning two properties means two sets of costs, two potential maintenance issues, and twice the exposure to interest rate changes. Make sure the numbers work under different scenarios before committing.

Refinancing to release equity can open doors that would otherwise take years to reach. If you've built up value in your Kingston home and you're ready to put it to work, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions