Simple hacks to fund a holiday home purchase

Financing a holiday home requires a different approach to your primary residence.

Lenders treat a second property purchase differently because you already have a mortgage, which affects your borrowing capacity and deposit requirements. Most lenders will require at least a 10% deposit for a holiday home, and some will charge higher interest rates than owner-occupied loans. The loan structure you choose determines how much equity you can access from your current property and whether you qualify for certain loan features like offset accounts.

Using Equity From Your Current Property

You can borrow against the equity in your existing home to fund the deposit and purchase costs for a holiday home. If your current property has increased in value since purchase, that growth becomes accessible equity. Lenders typically allow you to borrow up to 80% of your home's value without paying Lenders Mortgage Insurance (LMI), though ADF members may access higher limits through LMI waivers.

Consider someone posted to RAAF Base Williamtown who purchased locally several years ago. Their property may have appreciated substantially, creating equity that can fund a coastal holiday home deposit without selling or significantly impacting their current mortgage repayments. The calculation works like this: if the current property is valued at $700,000 with a remaining loan of $400,000, accessible equity sits at around $160,000 before crossing the 80% loan to value ratio threshold. That covers a deposit and settlement costs on a second property comfortably.

Structuring the Loan as Investment or Owner-Occupied

You need to decide how the property will be used before applying. If you plan to rent the holiday home when you're not using it, the loan becomes an investment loan with slightly higher interest rates but tax-deductible interest payments. If the property remains solely for personal use, it's classified as owner-occupied with lower rates but no tax benefits.

The distinction matters more than the rate difference alone. An investment loan gives you access to interest-only repayments, which reduces your monthly outgoings and improves cash flow if you're managing two mortgages. Owner-occupied loans typically require principal and interest repayments, which build equity faster but cost more each month. Some lenders allow a mixed-use declaration if you occupy the property part of the year and rent it out occasionally, though this gets assessed case by case.

Split Loan Structures That Protect Your Flexibility

A split loan divides your borrowing between fixed and variable rates. You might fix half the loan amount to lock in repayments and leave the other half variable to access features like offset accounts and make extra repayments without penalty. This approach works particularly well for holiday home purchases because your income and expenses can shift depending on deployment schedules and rental income.

In our experience, Air Force members benefit from keeping at least part of the loan variable so they can park savings in an offset account when posted or deployed. The offset reduces interest charges without locking funds into the loan, which maintains access if you need cash for relocation or maintenance on either property. Refinancing later becomes simpler if part of the loan is already variable, as fixed rate break costs only apply to the fixed portion.

Borrowing Capacity With Two Mortgages

Lenders assess your ability to service both loans simultaneously, even if you plan to rent out the holiday property. Rental income is typically discounted by 20% to account for vacancy periods and maintenance costs, so a property generating $30,000 annually in rent is assessed as $24,000 of usable income. Your existing mortgage repayments, living expenses, and any other debts reduce what you can borrow for the second property.

Some lenders calculate serviceability more favourably for ADF members due to job security and allowances. Defence Housing Allowance, for example, can sometimes be included in income calculations depending on your posting location and the lender's policy. Running the numbers before you start looking at properties prevents disappointment later. If your borrowing capacity falls short, waiting to build more equity or reduce other debts might be more practical than applying and being declined.

Offset Accounts and Loan Features for a Second Property

Not all lenders offer offset accounts on investment or second property loans, and those that do may charge higher fees or rates to include them. An offset account linked to your holiday home loan allows you to reduce interest charges by parking your salary or savings in the account, which is particularly useful if rental income from the property sits idle between expenses.

Some home loan products include portable loan features, meaning you can transfer the loan to a different property if you decide to sell the holiday home and purchase another. This avoids discharge and application fees. Before selecting a loan, confirm whether redraw facilities, extra repayment options, and offset accounts are included without additional cost, as these features vary significantly between lenders.

Deposit and Settlement Costs for a Holiday Home

You'll need to cover the deposit, stamp duty, legal fees, and inspection costs upfront. Stamp duty on a second property is charged at standard rates without any first home buyer concessions, which can add tens of thousands depending on the purchase price and state. Legal and conveyancing fees typically sit between $1,500 and $3,000, and building and pest inspections add another $500 to $800.

If you're using equity from your existing property, the funds are typically released at settlement, so you may need bridging finance to cover the deposit when you exchange contracts. Bridging loans allow you to access equity before selling or refinancing, though they come with higher interest rates and short repayment terms. Alternatively, some lenders allow you to refinance your current home and draw down the equity ahead of making an offer, which gives you cleared funds to move quickly when the right property appears.

Call one of our team or book an appointment at a time that works for you to discuss how a holiday home purchase fits within your current financial position and what loan structure delivers the most flexibility for your posting schedule.

Frequently Asked Questions