How to Use Home Equity for an Off‑the‑Plan Apartment Deposit

Using equity in your current home to fund an off‑the‑plan apartment deposit means borrowing against your existing property so you don’t have to save the whole deposit in cash. In practice, you increase your home loan or add a new split, then use those funds to pay the 5–10% deposit when you exchange contracts. The key decision is not “can I?” but “how do I do this without putting my family or future borrowing power at risk?”.

This guide walks you through the structures, numbers, traps and a practical one‑week action plan so you can move from idea to clear decision.

Understanding usable equity is the starting point for funding an off-the-plan deposit.

1. The basics: how equity release for off‑the‑plan actually works

1.1 What is equity and “usable” equity?

Equity is the difference between your property’s value and the total owing on loans secured against it.

• Equity = Property value − Total home loans
• Usable equity is the portion a bank will let you borrow against, based on their maximum loan‑to‑value ratio (LVR), usually 80% for safe, no‑LMI lending.

Example:

• Home value: $1,200,000 (bank valuation)
• Current home loan: $600,000
• Max at 80% LVR: $960,000 (1,200,000 × 80%)
• Potential usable equity: $960,000 − $600,000 = $360,000

You don’t have to use all of that. In fact, most people shouldn’t.

For a deeper dive on safe equity limits, see How to Unlock Home Equity Safely Without Derailing Your Future.

1.2 How does this fund an off‑the‑plan deposit?

When you buy off‑the‑plan, you usually:

1. Pay a 5–10% deposit at exchange of contracts (sometimes more for investors).
2. Pay the balance at settlement, 1–3 years later.

Instead of using cash savings alone, you:

• Apply to increase your current loan (top‑up) or
• Add a new loan split against your home.

Those funds go into your everyday or offset account, then to your solicitor’s trust account for the deposit on the new property.

Your off‑the‑plan lender later takes security over the new apartment at settlement. Your current home stays as security for the equity‑release loan.

1.3 Why buyers do this

Common reasons to use equity for the deposit:

• You have strong equity but not enough liquid cash.
• You want to keep your cash buffer for safety or business needs.
• You’re planning to invest without selling the current home.
• You’re self‑employed and prefer not to strip business cash.

For self‑employed buyers, combine this with the strategies in Smart Deposit Strategies For Self‑Employed First‑Home Buyers.

2. How much equity can you safely use?

The right number is rarely “as much as the bank will lend”. It’s the amount that lets you reach your goal while keeping stress and risk contained.

2.1 Safe LVR ranges

From a conservative perspective:

• Comfortable for most households: Total home LVR at or below 80%
• OK with eyes open: Up to 85–88% where cash flow is strong and risks are understood
• High‑risk zone: 90%+ – more sensitive to valuation drops, higher interest and often LMI

Australian lenders also add around a 3% serviceability buffer above actual interest rates to check you can afford repayments at higher rates (APRA guidance). That’s crucial when you’re taking on a second property.

2.2 Worked example: using equity for a 10% deposit

You want a $900,000 off‑the‑plan unit. The developer requires 10% deposit ($90,000).

Your current position:

• Home value (bank val): $1,000,000
• Current loan: $500,000
• Max at 80% LVR: $800,000
• Usable equity at 80%: $300,000

You decide to:

• Increase your home lending by $100,000 (new split)
• Use $90,000 for the deposit
• Keep $10,000 as extra buffer for legal fees and valuation costs

After the equity release:

• Total home loan: $600,000
• LVR: 600,000 ÷ 1,000,000 = 60% – very comfortable

At settlement (assuming valuation stacks up):

• Purchase price: $900,000
• Deposit already paid: $90,000
• New loan on unit: ~$810,000 (90% LVR) or less if you tip in more cash later

Here, you’ve used equity without pushing your home anywhere near a risky LVR. That’s the core idea of safe structuring.

For another lens on equity safety and buffers, see Using Home Equity Safely for Major Life Moves and Safety Nets.

2.3 Table: common structures for funding deposits

3. The big risks unique to off‑the‑plan

Using equity for a standard established property is one thing. Off‑the‑plan adds extra layers of risk you must plan around.

3.1 Valuation risk at settlement

You exchange contracts now, but your loan is formally assessed close to settlement. If the eventual bank valuation is lower than the contract price, you may have to tip in more cash.

Example:

• Contract price: $900,000
• At settlement, bank values at: $840,000
• Lender max at 90%: $756,000
• Required contribution: $900,000 − $756,000 = $144,000
• You already paid $90,000 deposit from equity
• Extra needed: $54,000 on top of the deposit

If you can’t find that extra $54,000, you risk breaching the contract.

This is why equity release must be paired with cash buffers and Plan B, not used to the last dollar.

For a broader overview of costs and risks, read Planning Deposits and Upfront Costs for Off‑the‑Plan Apartments.

3.2 Time and life‑change risk

Off‑the‑plan projects often take 12–36 months. In that time:

• Your income may change (job change, maternity leave, business downturn).
• Expenses can rise, especially with inflation and interest rate movements.
• Credit policy can tighten.

Lenders must assess your borrowing power at settlement using their current rules and a rate buffered by about 3%. If your situation has worsened, a pre‑approval from 18 months ago may not mean much.

3.3 Cash flow risk from two properties

When you settle the new apartment, you can end up with:

• Your existing home loan (now larger after equity release), and
• A new loan secured against the off‑the‑plan unit.

If you’re holding the existing property as an investment, you also need to consider:

• Likely rent vs repayments
• Tax implications of deductible vs non‑deductible interest
• Periods of vacancy

A basic test is to model your total repayments at 2–3% above current rates and see if your budget still works.

4. Structuring the loans the smart way

The structure you choose determines:

• Your flexibility
• Tax outcomes
• How easy it is to refinance later

4.1 Separate loan splits by purpose

A core principle (20) is to separate loan splits by purpose:

• Home loan split A – existing home purchase
• Home loan split B – equity released to fund investment deposit
• New loan C – main loan secured against the off‑the‑plan apartment at settlement

Why? Because it’s critical for tax deductibility and for future refinancing options. You don’t want personal and investment debt muddled in one blended loan.

4.2 Interest‑only vs principal & interest

For the equity‑release deposit split, options include:

• Interest‑only (IO) during the construction period
  • Lower repayments now
  • Interest may be deductible if the purchase is an investment (get tax advice)
• Principal & interest (P&I) from day one
  • Higher repayments
  • Reduces the balance before settlement

Many investors choose IO on the investment‑related equity split and P&I on their home loan split, but this must be matched to your cash flow and risk tolerance.

4.3 Offset accounts and cash parking

Where possible, park the released equity in an offset account until the deposit is actually needed. Benefits:

• You’re not paying interest on money you haven’t used yet.
• You can quickly move funds when your solicitor calls for them.

Once the deposit is paid, keep any remaining funds as part of your safety buffer, not lifestyle spending. Slippage here is one of the fastest ways equity strategies go wrong.

For more on responsible equity use, see How to Unlock Home Equity Safely Without Derailing Your Future and Demystifying Debt Consolidation: Using Your Home Equity Wisely.

5. Tax, investment and guarantee considerations

Using equity for an off‑the‑plan deposit is both a lending and a tax decision. It’s worth getting both lenses on it.

5.1 Tax deductibility of interest

Broadly (and subject to tax advice):

• Interest on equity used to buy an investment property is usually deductible.
• Interest on equity used for personal purposes (holidays, private school fees) is not.

If you’re buying the off‑the‑plan unit as an investment, using a separate investment split for the deposit helps your accountant clearly identify deductible interest.

Upcoming changes to capital gains tax from 1 July 2027 (1, 4–9) may also shift the long‑term after‑tax return on property investments. That makes it more important to model investment decisions on post‑tax numbers, not just headline capital growth assumptions.

5.2 Using guarantors vs using your own equity

Some buyers are offered the option of using a family guarantor instead of or as well as releasing equity. This can reduce LVR and LMI on the off‑the‑plan purchase, but it also exposes the guarantor’s property to the lender’s enforcement rights if things go wrong (3).

Using your own home equity rather than a parent’s property may be safer for family relationships, even if it means slowing down or buying a slightly cheaper apartment.

5.3 Deposit bonds and bank guarantees

Instead of cash or equity at exchange, some buyers consider deposit bonds or bank guarantees. These can work in certain cases, but they don’t remove the need for equity or cash at settlement, and they can backfire if your borrowing capacity falls.

We cover those tools separately in the cluster article “Deposit Bonds and Bank Guarantees: When They Work and When They Backfire”. For now, treat them as tools to manage timing, not replacements for a solid equity and cash position.

6. Practical steps: what to do this week

Here’s a realistic one‑week plan to move from vague interest to a clear decision.

A one-week action plan helps turn vague ideas into a concrete decision.

6.1 Day 1–2: Clarify your goals and timeframe

Be specific:

• Are you buying to live in or as an investment?
• Do you plan to keep or sell your current home long term?
• What’s your target price range and settlement window (e.g. “$800k–$1m, completing in 18–24 months”)?

This shapes how aggressive it makes sense to be with equity.

6.2 Day 2–3: Rough‑cut your numbers

Pull together:

• Estimate of your home’s value (recent sales + conservative view)
• Current loan balances and interest rates
• Household income and key expenses

Then:

1. Calculate your approximate usable equity at 80% LVR.
2. Estimate the deposit and upfront costs for your target purchase price using the framework in Planning Deposits and Upfront Costs for Off‑the‑Plan Apartments.
3. Decide on a target safety buffer – e.g. 3–6 months of essential expenses plus a few thousand for valuation/legal surprises.

6.3 Day 3–4: Speak with a broker who understands tax

This is where a CPA + Tax Agent + Broker combination adds real value. In one conversation you can:

• Test how much equity you can safely access.
• Model repayments at current rates plus 2–3%.
• Check how lenders will view your income (especially if self‑employed).
• Sketch a loan structure that preserves tax deductibility and future flexibility.

About 70% of new Australian home loans already go through brokers (17), reflecting how complex this has become. Lean on that expertise.

You can also review whether you should:

• Refinance your current loan to a sharper rate while releasing equity, or
• Keep the current loan and add a new split only.

The article Using a Mortgage Broker to Refinance, Consolidate Debt and Unlock Equity outlines how this works in more detail.

6.4 Day 4–5: Sense‑check the project and contract

Before signing anything:

• Get your solicitor to review the contract of sale, sunset dates and variation clauses.
• Ask the developer/agent about:
  • Stage of construction
  • Track record on past projects
  • Likely completion timeframe
• Ask your broker whether the developer and project are on any lender “blacklists” or require higher deposits.

The more speculative the project, the more conservative you should be with equity.

6.5 Day 5–7: Decide your limits and commit (or walk away)

By the end of the week, aim to have decided:

• Maximum equity amount you’re prepared to release (e.g. “up to $150k, but only if home LVR stays under 75%”).
• Minimum cash buffer you insist on keeping, untouched.
• Whether you’re comfortable proceeding with this specific project.

If the numbers only work by stretching to 90%+ LVR, draining cash buffers and hoping valuations hold up, that’s a signal to slow down or scale back the purchase price.

7. Alternatives to using equity for the full deposit

Not every buyer should lean heavily on equity. Other strategies can reduce risk.

Using equity from your current home can bridge the deposit to a new off-the-plan apartment.

7.1 Part equity, part savings

You might choose to:

• Use equity for, say, half the deposit; and
• Build the rest through accelerated savings into your offset over the construction period.

If you have 18–24 months before settlement, this can meaningfully reduce your non‑deductible home debt.

7.2 Leveraging government schemes (for first‑home buyers)

If the off‑the‑plan unit will be your first home and you meet eligibility rules, the First Home Guarantee (FHBG) can let you buy with a much smaller cash deposit and no LMI, provided the project meets strict timeframes and caps.

The guide Using the First Home Guarantee to Buy Off-the-Plan: A Practical Guide explains these rules and traps in detail. In some cases you can combine a modest equity release with FHBG to avoid pushing your home LVR too high.

7.3 Waiting, paying down and then buying

Sometimes the best move is to:

1. Spend 12–24 months paying down your home loan and building savings.
2. Re‑value the property once that’s done.
3. Then look at off‑the‑plan opportunities with a stronger base.

Yes, you might miss a specific project. But property cycles move in years, and going in under‑prepared can cost more than waiting.

8. Common mistakes when using equity for off‑the‑plan

Being aware of the typical missteps can help you avoid them.

8.1 Treating equity as free money

Equity is borrowed money secured against your home. Every dollar used for a deposit:

• Increases your interest cost
• Reduces your future borrowing capacity
• Potentially puts your home at higher risk if things go badly

Only use equity for investments or moves with a clear plan and measured downside.

8.2 Over‑gearing based on best‑case valuations

Assuming “property always goes up” and borrowing to the hilt because you think your new apartment will be worth more at settlement is dangerous. If the market softens, you can end up owing more than both properties are worth.

Run your numbers assuming flat or slightly lower valuations instead.

8.3 Blending personal and investment purposes in one loan

If you use the same loan split to pay:

• Investment deposit, and
• Personal expenses or other debts

you make your accountant’s job very hard and may lose tax advantages. Keep each purpose in its own clearly tagged loan split (20).

8.4 Ignoring exit strategies

Ask yourself:

• If interest rates jumped 2–3%, what would I cut first?
• If I had to sell one property, which would it be, at what likely price, and would the loans be cleared?

The time to think through exits is before signing an off‑the‑plan contract, not after construction has started.

Key takeaways

• You can use equity in your current home to fund an off‑the‑plan deposit by increasing your loan or adding a new split, but the safest approach is to keep your home LVR near or below 80% and maintain a clear cash buffer.
• Off‑the‑plan adds extra risk – especially valuation changes and borrowing‑power shifts between exchange and settlement – so you need a plan for best, base and worst‑case scenarios.
• Separating loan splits by purpose, using offsets effectively and stress‑testing repayments at rates 2–3% higher are non‑negotiables for a robust structure.
• Tax outcomes hinge on how funds are used, not just what they’re secured against; a clean split between home and investment debt gives you and your accountant options.
• Alternatives like partial equity, savings plans and government schemes such as the First Home Guarantee can reduce how hard you need to lean on equity.

If you’re considering using equity for an off‑the‑plan deposit, it’s worth getting your tax, your loan structure and your long‑term plan looked at in one conversation. Book a free 15‑minute strategy call at https://localknowledge.finance/contact to test your numbers, sketch a safe structure and stress‑test your plan before you sign anything.

General advice only.