Your equity can fund the deposit. Whether a lender will actually lend you the rest is a separate question, and it is the one most equity guides skip. Here is how borrowing capacity really gets worked out.
By the Chase Wealth Australia advisory team · 21 July 2026
Work out your usable equity →Every equity guide on this site, including our own, answers the same first question: how much deposit can your home’s equity release. That number matters, and it is also only half the picture. Holding $140,000 of usable equity does not mean a lender will approve a loan large enough to put it to work. The bank runs a second, completely separate test, usually called serviceability or borrowing capacity, and it has nothing to do with the equity sum. This guide is the missing second half: how lenders actually decide how much you can borrow, and why two people with identical equity can walk away with very different answers.
In short, borrowing capacity comes down to your income, tested against your living expenses, your existing debts and the repayments on the new loan, all calculated at a higher, stress-tested interest rate than the one you were quoted. A larger deposit reduces the size of the loan you need. It does not change whether a lender believes you can comfortably repay it.
Our guide to using equity to buy an investment property and the Equity Unlock Calculator both answer the deposit question: roughly, your home’s value multiplied by 80 per cent, minus your current loan balance. That figure tells you what you can put down. It says nothing about the loan a lender will actually approve to sit alongside it. Many of the homeowners we work with hold $300,000 or more in usable equity, comfortably enough for the deposit side of the equation. The borrowing test is where the real range in outcomes shows up.
Think of it as two gates that both have to open before a purchase goes ahead. The first gate is the deposit gate: how much cash or equity you can bring. The second is the borrowing gate: how large a loan a lender is willing to approve, based on your income and commitments. Passing one gate says nothing about the other. A homeowner can hold six figures of usable equity and still be told no by the first lender they ask, because the borrowing gate, not the deposit gate, is where the ceiling actually sits.
When a lender works out how much you can borrow, it does not use the interest rate printed on your loan offer. It adds a buffer on top of that rate, and tests whether your income could still cover the repayments at the higher, buffered figure. That buffer exists because rates move over the life of a 25 or 30 year loan, and a lender wants evidence you could absorb an increase before it commits to the loan, not after.
The regulator, APRA, sets a minimum buffer that lenders must build into this test, currently at least 3 percentage points above the rate on offer. As an illustrative example only: if the rate you are quoted is 6.5 per cent, a lender assessing your capacity at a 3 percentage point buffer would test your ability to repay at roughly 9.5 per cent, not 6.5 per cent. Individual lenders can and do apply their own buffer on top of the APRA floor, and that is one of the reasons the same household can be assessed differently from one lender to the next. The number on your loan document is the price you pay. The number a lender tests you against is higher, and it is the one that actually sets your ceiling.
A lender does not only look at what you owe today. Credit cards are typically assessed against their full limit, not your current balance, and against an assumed minimum repayment on that limit, whether you carry a balance or pay the card off in full every month. An unused $20,000 limit sitting in your wallet can quietly reduce your borrowing capacity by more than most people expect, simply because it exists.
Personal loans and car loans count as ongoing commitments for as long as they run, regardless of how close they are to being paid off. HECS or HELP debt is treated as a compulsory repayment that reduces your usable income, calculated against your income level rather than your remaining balance. None of these debts need to be large to matter. A handful of manageable, everyday commitments can add up to a meaningful bite out of the loan a lender is prepared to approve, well before the new investment loan is even factored in.
The rent an investment property is expected to earn does help your borrowing capacity, but a lender will not count all of it. Most lenders apply a shading factor to the expected rental income, treating a portion of it as a buffer against vacancy periods, management fees and maintenance costs, rather than assuming the property is tenanted and paying at full rate every week of the year.
As an illustrative range only, a lender might count somewhere in the order of 70 to 80 per cent of the expected weekly rent when calculating your income for serviceability purposes. On a property expected to earn $600 a week, that could mean only $420 to $480 of it is counted towards your capacity, with the rest treated as margin. The exact shading a lender applies varies, and a formal, lender-recognised rental appraisal in writing generally counts for more than a verbal estimate or a listing price from a property portal.
Borrowing capacity is not just income minus debts. Lenders also weigh your declared living expenses, covering everyday costs such as groceries, utilities, insurance, transport and childcare, against a standardised expense benchmark based on your income, household size and location. If your declared expenses sit below that benchmark, the lender typically uses the higher benchmark figure instead of your own number, on the reasoning that no household consistently spends less than a reasonable minimum.
This is why two households on the same income do not necessarily get the same answer. A household with a larger family, higher declared expenses, or existing school fees and private health cover will be assessed against a higher expense floor than a household with fewer regular outgoings, and that floor eats directly into the income available to service a new loan.
The two households below are illustrative only, built on round numbers to show the mechanism, not a quote or a promise for any real applicant. Both hold the same $140,000 of usable equity in their home, released the same way, and both are shopping in the same $600,000 to $650,000 price range. Their borrowing capacity is not the same, because the borrowing gate tests income and commitments, not equity.
Household A carries no consumer debt and no HECS, so nearly all of their income is available to service a new loan once the assessment rate is applied. Household B holds the same equity, but two credit cards with combined limits, an active car loan and a HECS balance all sit against their income before the new loan is even considered, narrowing what is left over. Neither household did anything wrong. They simply sit on different sides of the borrowing gate, while standing on identical ground at the deposit gate.
The Equity Unlock Calculator tells you your usable equity, the deposit side of this equation. It does not test your income, debts or expenses, so it cannot tell you your borrowing capacity. Run your equity number first, then bring it to a strategy session for the serviceability side.
Open the Equity Unlock CalculatorBorrowing capacity is not fixed. A handful of practical steps genuinely move the number, in some cases before you even apply:
None of this replaces working through your own numbers with someone who can see the whole picture. If the deposit maths works but the borrowing side is the open question, that is exactly the conversation a strategy session is built for. For the fundamentals on getting started, our guides to how to buy an investment property in Australia and the mistakes first-time investors make are the natural next steps, and if you want the equity side in full, how much deposit you need for an investment property and how equity works when buying a second property cover that ground in detail.
A strategy session tests your income, debts and expenses against your usable equity, so you get a real borrowing capacity answer, not just a deposit figure. Bring your calculator result and we will work through what a lender would actually approve.
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