Equity is the value of your home, less any money owed on it. For example, if your house is valued at $600,000 and the current debt is $250,000, the equity in the home would be $350,000.

You can leverage the equity in your home to cover the deposit on a new property, using your existing property as collateral. It’s great to make the first step to enter the property market because once you’re in, using equity is generally much easier than saving for another deposit. Find out more about using equity to buy another home. 

Buying an investment property is a popular choice of investment for many Australians. Compared to other forms of investment like shares, bonds and ETFs - investing in property is easy to understand. Plus, home loan rates are at record lows, and you can use your home's equity to fund your property investment.

Some benefits of purchasing an investment property include:

• Potential tax benefits for property investors
• Potential capital growth
• Relatively stable investment
• Passive income

Unlike most home loans where each loan repayment consists of both interest and principal (meaning your loan balance reduces with each payment), on an interest only loan you only need to pay the interest calculated on your loan each month. This is particularly helpful to investors who wish to pay the smallest repayment amount.

At loans.com.au, you can choose up to a 5 year loan term for interest only, and once this expires you loan will revert to a principal and interest loan. Your repayments will increase after this period in order reduce your loan down by the end of the term.

If you purchase an investment property, you are likely to come across the term “gearing”. This means borrowing for the purpose of investing.

If you borrow to make an investment it can be negatively geared - where interest repayments exceed net income, or positively geared where net income exceeds repayments.

Negative gearing means that the cost of owning an investment property outweighs the rental income it generates. As an example, assuming your rental property earns $20,000 in one year and the expenses of owning the property (loan repayments, body corporate fees, maintenance, etc.) are $25,000. You will have a loss of $5,000 which you can claim as a tax deduction.

One benefit of this is the ability to claim tax deductions and reduce your taxable income. Additionally, a negatively geared property investment may appreciate in value over time.

It’s important to note the risk involved in negative gearing because you are losing money, so you’ll need to be aware of this so you can budget and prepare for the losses.