Understanding the basics of refinancing to access equity

What refinancing to access equity means

Refinancing to access equity means replacing your current home loan with a new one for a higher amount, then taking the difference as cash. The property secures both the original debt and the additional funds, which you can then use to fund an investment deposit, contribute to a property purchase, or cover associated costs.

Consider a Defence member who owns a home with $200,000 in equity after accounting for what they still owe. If they refinance and increase the loan by $80,000, that amount is paid out as cash at settlement while the new loan remains secured against the same property. The borrowing limit depends on how much equity you hold and what the lender will approve based on your income and commitments.

Why Defence members refinance for investment funding

Many ADF personnel prefer to access equity rather than save a second deposit from scratch, particularly when deployments or postings interrupt consistent savings patterns. Releasing equity also means you can move on a property when the opportunity arises without waiting years to accumulate cash reserves.

In our experience, members who have been posted multiple times often hold equity in a previous home they've retained as an investment property. Refinancing that loan allows them to fund the next purchase while keeping the original property tenanted. This approach preserves cash flow and avoids selling an asset that may already be generating income or capital growth.

How much equity you can access

Most lenders will allow you to borrow up to 80% of your property's current value without incurring additional insurance costs. If your home is valued at $600,000 and you owe $300,000, you hold $300,000 in equity. Borrowing up to 80% of the property's value means a maximum loan of $480,000, leaving $180,000 available to release after repaying the existing debt.

If you choose to borrow above 80%, lenders will typically require you to pay Lenders Mortgage Insurance. Defence members often qualify for LMI waivers, which can make higher loan-to-value ratios more practical without the usual cost penalty. The amount you can actually access also depends on your income, existing debts, and the lender's assessment of your ability to service the larger loan.

What the refinance process involves

The lender orders a valuation of your property to confirm its current market value, then assesses your income and liabilities to determine how much they will approve. You submit payslips, tax returns if applicable, and details of any other debts or commitments. Once approved, the new lender pays out your existing loan at settlement and transfers the additional funds to your nominated account.

As an example, a member refinancing a $400,000 loan on a property now valued at $650,000 might apply for a $500,000 loan. After the existing lender is repaid, $100,000 is released to the borrower. Settlement typically takes four to six weeks from application, though timing can vary depending on the lender and whether any conditions need to be satisfied.

Fixed rate considerations when refinancing

If you are currently on a fixed rate and still within the fixed term, breaking that loan early will usually trigger a cost. The calculation depends on the difference between your fixed rate and the current wholesale rate the lender can access. The larger the gap and the longer remaining on your fixed term, the higher the break cost.

Members coming off a fixed rate naturally have more flexibility to refinance without penalty. If your fixed period is due to expire within a few months, it may be more practical to wait until that date rather than incur unnecessary costs. Alternatively, if the investment opportunity is time-sensitive and the equity release delivers a clear benefit, the break cost may be justified. Run the numbers with actual figures before committing.

Using equity to fund an investment deposit

Once the funds are released, you can use them as a deposit on an investment property, cover stamp duty and other purchase costs, or meet the lender's requirements for genuine savings. Lenders typically require at least a 10% deposit for investment loans, and some prefer to see a portion of that deposit held for a minimum period. Equity release can satisfy both requirements if structured correctly.

If you are expanding your property portfolio, the ability to access equity without selling your current home allows you to build holdings over time while retaining exposure to multiple markets. The refinanced loan remains secured against your original property, while the new investment property secures its own separate loan. Each property operates independently in terms of security, though your income must support both debts.

Interest rate and loan structure decisions

When refinancing to access equity, you will need to decide whether to take a variable rate, a fixed rate, or a split. Variable rates allow you to make extra repayments and access funds through redraw or offset without restriction. Fixed rates lock in your repayment amount for a set period but limit flexibility if your circumstances change.

Many Defence members opt for an offset account on the refinanced loan, particularly if they expect lump sum payments such as deployment allowances or a posting allowance. Funds sitting in offset reduce the interest charged without locking them into the loan, which preserves access if you need cash for the investment property or other commitments. If you are refinancing to access a lower interest rate, compare the rate and features as a package rather than focusing on rate alone.

Serviceability and how lenders assess the application

The lender calculates whether your income can service both the increased home loan and any new investment loan you plan to take out. They apply a buffer to the interest rate and assess rental income at a discounted rate, usually around 80% of the expected rent. If you hold other debts such as car loans or credit cards, those commitments also factor into the calculation.

Defence income is generally viewed favourably by lenders familiar with ADF pay structures, but you will still need to demonstrate that your base salary and any ongoing allowances cover the repayments with a margin. If you are refinancing an existing investment loan, the lender will also review the performance of that property and whether it is tenanted.

Tax and reporting obligations

If you use the released equity to fund an investment property, the interest on that portion of the loan is generally tax deductible. Keeping the funds in a separate account or clearly documenting their use makes it straightforward to demonstrate the purpose if the ATO requests evidence. If the funds are used for personal expenses, that portion of the interest is not deductible.

Speak with an accountant before finalising the refinance structure, particularly if you plan to use the funds for multiple purposes or if the investment property will be held in a trust or other entity. The way the loan is structured and documented at the outset determines how the interest is treated for tax purposes, and changing it later is often not possible.

When refinancing to access equity makes sense

Refinancing to release equity is most useful when you have a clear investment plan, sufficient income to service the larger debt, and confidence that the property you are purchasing will perform over time. It is less suitable if your current loan already sits at a high percentage of the property's value, if your income is uncertain, or if you do not have a specific use for the funds.

A loan health check can confirm whether your current loan structure is still appropriate and whether refinancing would deliver a tangible benefit. If your existing rate is already low and your loan has the features you need, refinancing purely to access equity may not be the right move unless the investment opportunity justifies the change. Evaluate the decision based on the outcome you are trying to achieve, not just the availability of funds.

Call one of our team or book an appointment at a time that works for you. We will review your current loan, confirm how much equity you can access, and structure the refinance to support your investment plans without unnecessary cost or complexity.

Frequently Asked Questions