What are the Steps to Refinance and Release Equity?

What Does It Mean to Refinance and Release Equity?

Refinancing to release equity means increasing your existing home loan to access the value that's built up in your property, then using those funds for another purpose.

Your property equity is the difference between what your home is worth and what you owe on it. When you refinance to release this equity, your lender increases your loan amount and provides you with the additional funds as cash. You're still borrowing against the same property, but at a higher loan amount than before. The funds can then be directed toward a deposit and purchase costs for an investment property or second home.

How Much Equity Can You Access in Frankston?

Most lenders will allow you to borrow up to 80% of your property's value without requiring lender's mortgage insurance.

If your Frankston home is valued by the lender and you currently owe less than 80% of that valuation, the difference between your current loan balance and that 80% threshold is your available equity. Consider a homeowner in Frankston South whose property is valued at $850,000 with a remaining loan balance of $480,000. At 80% LVR, they could borrow up to $680,000. That leaves $200,000 in accessible equity before hitting the insurance threshold. Not all of that equity would be released as cash, some must cover refinancing costs, but a significant portion remains available for a deposit on a second property.

Lenders calculate usable equity conservatively. They'll order a valuation, apply their own assessment of your property's worth, and determine how much additional borrowing your income can service alongside your existing commitments.

Why Frankston Properties Are Suited to Equity Release

Frankston's proximity to the bay, the revitalised CBD, and access to the Frankston line make it a location where property values have held consistently.

Homeowners who purchased in areas near Olivers Hill or around Frankston Hospital over the past decade often find they've built substantial equity as the area has matured. That equity becomes a practical tool when the goal is to enter the investment market without needing to save a full deposit from income alone. Properties in Frankston also tend to appeal to a wide tenant base, which means if you're using released equity to buy locally, you're investing in a market you already understand.

What's Involved in the Refinancing Process?

The process begins with a valuation of your current property and an assessment of your borrowing capacity.

Your broker will request a formal valuation through the lender to establish your property's current worth. At the same time, you'll need to provide income documentation, details of your existing debts, and a clear explanation of how the released funds will be used. Lenders want to see that the second property purchase is viable and that you can service both loans comfortably. Once approved, the refinance settles, your old loan is paid out, the new loan is established at the higher amount, and the equity is released either directly to you or held in an offset account ready for the deposit.

Settlement timeframes vary, but most refinancing applications are assessed within two to three weeks if documentation is complete.

How Do Lenders Assess Serviceability for Two Properties?

Lenders calculate whether your income can cover repayments on both your existing home and the property you're purchasing.

They'll apply a serviceability buffer, usually adding a margin above the actual interest rate to stress-test your capacity. Rental income from the investment property is included in the assessment, but lenders typically only count 80% of the projected rent to account for vacancies and costs. Your current living expenses, credit card limits, and any other debts also factor into the calculation. In scenarios where the borrower has irregular income or multiple financial commitments, serviceability can become the limiting factor even when equity is available.

This is where structure matters. Splitting your loans, using offset accounts, or choosing interest-only terms on the investment loan can all improve your serviceability position without requiring you to earn more.

Should You Use a Single Loan or Split the Structure?

Keeping your owner-occupied debt separate from your investment borrowing provides clarity for tax purposes and repayment flexibility.

When you refinance and release equity, you can structure the new borrowing as two separate loans: one for your home, one for the investment. Interest on the investment loan is generally tax-deductible, while interest on your home loan is not. Mixing the two makes it harder to claim deductions accurately and complicates your records if you ever sell or refinance again. A split structure also allows you to choose different repayment types. You might keep principal and interest repayments on your home loan while selecting interest-only on the investment loan to manage cash flow.

Your broker can model both options and show you the difference in repayment amounts and tax treatment.

What Costs Should You Budget for When Refinancing?

Refinancing involves discharge fees from your current lender, application fees for the new loan, valuation costs, and sometimes legal fees.

Discharge fees typically sit between $300 and $500. Valuation costs vary depending on property type but generally fall between $200 and $400. Some lenders charge application or establishment fees, while others offer fee rebates if you're borrowing above a certain amount. If you're switching lenders, you may also need to cover the cost of a new mortgage being registered on title. Budget around $2,000 to $3,000 in total costs for a standard refinance, though this can be higher if you're dealing with a more complex loan structure or multiple securities.

These costs are often capitalised into the new loan rather than paid upfront, but that does mean you're borrowing slightly more than the equity you're releasing.

How Does This Approach Compare to Saving for a Deposit?

Releasing equity allows you to enter the property market sooner without waiting years to accumulate cash savings.

If you're relying solely on income to save a deposit, you're competing against rising property values and opportunity cost. Using equity means the value already locked in your home is working toward your next purchase. The downside is increased debt. You're now servicing a larger loan on your primary residence as well as a second loan on the investment property. That requires confidence in your income stability and a clear understanding of your ongoing repayment obligations.

For buyers in Frankston looking to purchase an investment property in nearby suburbs like Seaford or Carrum Downs, this approach can be faster and more tax-effective than saving after-tax income.

When Is Refinancing to Release Equity Not the Right Move?

If your income is unstable, your existing loan repayments are already stretched, or property values in your area have declined, releasing equity may not be viable.

Lenders won't approve additional borrowing if your serviceability is marginal. Similarly, if your property's value has dropped or remained flat since purchase, you may not have enough equity to access without exceeding 80% LVR and triggering mortgage insurance. Refinancing also resets your loan term unless you specifically request otherwise. If you've already paid down five years of a 30-year loan and you refinance into a new 30-year term, you're extending the total time you'll be in debt.

Talk through your full financial position with a broker before committing. Releasing equity is a tool, not a default strategy, and it needs to align with your longer-term goals and capacity.

What Happens After You've Released the Equity?

Once the refinance settles and funds are available, those funds are typically held in an offset account or released as a lump sum to use toward your deposit.

You'll then work with your broker to arrange finance for the second property. That might involve a separate investment loan application with the same lender or a different one, depending on rates and policy. The equity you've released covers your deposit, and in some cases, a portion of the purchase costs like stamp duty and conveyancing. The second loan is assessed on its own merits, but your equity contribution reduces the LVR and improves your borrowing position.

From there, it's a matter of settling on the investment property and managing two loans instead of one. Many buyers in Frankston choose to keep both loans with the same lender for simplicity, while others split between lenders to access different features or rates.

Call one of our team or book an appointment at a time that works for you to discuss your equity position and how a refinance could support your next property purchase.

Frequently Asked Questions