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Should I borrow against the equity in my home to fund a high-yield property investment, and what do Australian lenders and APRA rules actually assess before they say yes?

· Yannick Ieko

Answering: Should I borrow against the equity in my home to fund a high-yield property investment, and what do Australian lenders and APRA rules actually assess before they say yes?

Estimated reading time: 12 min read

Borrow against your home only if you could keep paying the new loan from your own income, at the lender’s tested rate, for as long as the investment paid you nothing. If that test fails, the answer is no, however strong the property looks on paper. The Harmony Group asks for a minimum of $600,000 in cash, usable equity, or a combination of both, and for many investors the equity part means a new loan secured on the family home, which is why this decision comes before any conversation about a property.

What that equity could earn, and who can help you place it, come after a simpler question: whether to put the home on the line at all.

Key Insights

  • An equity loan is new debt secured on your home. The interest runs whether or not the investment pays.
  • Banks and other APRA-regulated lenders test you at your loan rate plus three percentage points, and look at your whole debt against your income.
  • The tax treatment of the interest follows what the money is used for, not which property secures it.
  • If you could not carry the repayments with the investment earning nothing, do not borrow.

Table of Contents

How borrowing against your home works

Equity is the part of your home’s value you own outright. A lender will usually let you borrow up to 80% of the home’s value, less what you still owe; above 80%, you may need lenders mortgage insurance. The lender works from its own valuation, not from an estimate you found online. How to arrive at that number is set out in our guide to what an equity calculator’s figure really means.

The money then reaches you in one of a few ways, and the structure matters later for both risk and tax:

  • A top-up: your existing home loan is increased and the extra is paid out to you.
  • A separate split or loan account: a new account, secured on the home, kept apart from the original loan, sometimes on different terms.
  • A refinance: the whole home loan moves to a new lender, with the extra amount set up as its own split.
  • Cross-collateralisation: the home is used as security for the loan on the new property as well.

Whichever route you take, the result is the same in one respect: the home now secures more debt. Moneysmart puts it plainly: if you borrow to invest using your home as security and you cannot keep up with repayments, you could lose your home.

What the lender assesses before it says yes

The equity tells a lender how much security you have. It does not tell them whether you can repay. For that, they look at your income, expenses, existing debts, the interest rate and your credit history, and they assess the new loan as part of everything you already owe.

Two settings from the Australian Prudential Regulation Authority sit over every bank and other authorised deposit-taking institution. As at 27 October 2026, APRA’s publications show no change to either:

  • The serviceability buffer. These lenders test whether you could repay at your loan rate plus three percentage points. If your budget only works at today’s rate, it does not pass.
  • The debt-to-income limit. Since 1 February 2026, a lender can write no more than 20% of its new owner-occupier lending, and separately no more than 20% of its new investor lending, to borrowers whose debt is six or more times their income. It is a limit on the lender’s book rather than an automatic no for one applicant, but a large equity loan on top of an existing mortgage can push you toward that ratio.

APRA’s limit excludes loans for the purchase or construction of new dwellings, so ask your broker how it applies to the particular loan you are considering rather than assuming it does or does not. APRA has also said it will consider further limits, including investor-specific ones, if risks rise significantly. How lenders and valuers then look at the property itself is covered in how banks and valuers assess a nine-bed co-living loan.

What drawn equity costs while it sits in the deal

Equity looks free on a statement because it is not costing you anything yet. The moment it is drawn, it becomes a loan with interest from day one, and you repay it whether or not the investment performs. Moneysmart’s warning is direct: you still have to repay the investment loan and interest, even if your investment falls in value.

The full cost of drawing equity usually includes:

  • interest on every dollar drawn, from the day it is drawn, including any months before a property starts earning;
  • loan establishment, valuation and any refinancing costs;
  • lenders mortgage insurance, if the total borrowing goes above 80% of the home’s value;
  • the investment property’s own holding costs, which Moneysmart lists as including council rates, insurance and repairs.

Rates move. The Reserve Bank raised the cash rate to 4.60% at its 29 September 2026 decision, and variable loan rates can follow the cash rate in either direction. Moneysmart’s test is the right one to run on your own budget: if rates went up by 2% or 4%, could you still afford the repayments? Run it before you draw, not after.

The tax follows the money, not the security

Many people assume that because a loan is secured on their home, its interest can never be claimed, or the reverse. The ATO’s position turns on use. Interest is deductible where the borrowed money is used to buy a property that is rented or held to produce assessable income. The ATO’s own example makes the point from the other side: a loan secured against a rental property but used to buy a new home is not deductible, because the new home is not producing income.

So the record of what the money did matters. If one loan account mixes private spending and investment spending, the ATO requires you to keep accurate records and apportion the interest, and that apportionment carries on for the life of the loan. Keeping the investment borrowing in its own split or account, and using it only for the investment, keeps the trail clean. Your accountant should confirm the structure before the money moves.

The risks that land on the family home

Moneysmart describes borrowing to invest as a high-risk strategy for experienced investors, and a medium to long-term one, at least five to ten years. The risks it names all become sharper when the security is the house you live in:

  • Bigger losses. Borrowing magnifies a fall in value, and the loan is still owed in full.
  • Capital risk. If you had to sell quickly, the sale might not clear the debt.
  • Investment income risk. Rent can be lower than expected, so you need to cover living costs and repayments without it.
  • Interest rate risk. A variable rate can rise while the loan is outstanding.

None of these is a reason never to borrow. They are the reasons to decide on numbers you would accept on a bad year, not a good one.

The decision: a fit or no-fit test

Put each of these to yourself, with your broker and accountant beside you. A no to any of them is a reason to stop, borrow less, or use cash instead.

  • Could you meet the new repayments from your own income at your rate plus three percentage points, with no rent coming in?
  • Would you still have an emergency fund you can reach quickly after the money is drawn?
  • Are you borrowing less than the maximum the lender offers? Moneysmart’s advice is to do exactly that.
  • Are you prepared to hold for at least five to ten years?
  • Does the expected return, after tax, exceed every cost of the loan and the property? Moneysmart’s line is that borrowing to invest only makes sense if it does.
  • Is the loan structured so the investment borrowing sits apart from your home loan?
  • Do you understand what you are buying well enough to explain how it earns?

If every answer is yes, borrowing against the home may be a reasonable way to fund part of an investment. If one is no, the honest answer is to wait or to use a different source of capital.

Where The Harmony Group fits

Our minimum is $600,000 in cash, usable equity, or a combination of both. How much of that should come from your home, if any, is the decision above, and it is yours and your adviser’s to make. Clients pay The Harmony Group $0; the builder pays at settlement, at the same rate across the panel, so nothing in our fee depends on how you fund your share.

What we can show you is the asset you would be borrowing for. Every site passes the 118-point method, and the team declines around 85% of the opportunities it assesses. The historical average gross yield across The Harmony Group’s delivered projects is 10.8%. That is a gross, historical figure; the net position depends on your loan structure, deposit and tax position, which is why the borrowing decision has to stand on its own. The team brings 15+ years of specialist accommodation experience to that conversation, and the asset itself is explained in The Harmony Formula.

If you have already decided to borrow, the next questions are answered in what $600,000 of usable equity could earn and who can help you put it into an income property.

Frequently asked questions about borrowing against equity

Q: How much can I borrow against my home in Australia?

Lenders usually let you borrow up to 80% of your home’s value, as they value it, less what you still owe. You can sometimes borrow more with lenders mortgage insurance. Whether you can borrow that much depends on serviceability: your income, expenses, debts and credit history, tested by banks and other APRA-regulated lenders at your rate plus three percentage points.

Q: Is the interest tax-deductible if I invest money borrowed against my home?

It can be. The ATO looks at what the borrowed money is used for, not which property secures the loan. Interest on money used to buy a property that is rented or held to produce income is generally deductible; interest on money used privately is not, and mixed loans must be apportioned. Confirm your structure with your accountant first.

Q: Does APRA’s debt-to-income limit stop me borrowing against my home?

Not automatically. Since 1 February 2026, banks and other authorised deposit-taking institutions can write no more than 20% of new mortgage lending at debt of six or more times income, counted separately for investors. A lender near that limit may say no, or ask for less debt, so your ratio matters even though the rule is not a ban.

Q: Should I use cash or home equity for The Harmony Group’s $600,000 minimum?

Either works, or a combination of both. Cash carries no new debt on your home; equity keeps your cash available but adds a loan secured on the house. Which suits you depends on your income, your other debts and how much risk the household can carry, which is a question for your broker and financial adviser.

Understand the asset before you draw a dollar

The free co-living education program covers how co-living property works in Australia, how the numbers stack up, how sites and builders are chosen, and what happens if you decide to go ahead, so you can judge the asset before you decide how to fund it. The core can be finished in about 45 minutes. Finish any 9 modules and a booking link opens for a one on one with one of our directors. If co-living isn’t suitable for you, we’ll tell you why.

Citations

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, mortgage broker, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. The 2027 negative gearing reform was enacted on 26 June 2026 and applies from 1 July 2027. The definition of a new residential dwelling is still being settled after Treasury’s consultation, so whether a nine-bed is an eligible new build remains unsettled. Other tax or regulatory measures described are subject to change.