Equity Loan Interest – Maximize Deductions Fast (2026)

For many Australians, navigating the complexities of home loans and equity loans can be a daunting task. One common question that arises is whether you can deduct the interest paid on an equity loan from your taxes. In a financial landscape where every dollar counts, understanding how to maximise your tax deductions can significantly impact your financial well-being. Let's explore the ins and outs of equity loan interest deductions, including what you need to know in 2026 to make informed financial decisions.

Understanding Equity Loan Interest

An equity loan, often known as a home equity loan or second mortgage, allows homeowners to borrow against the equity they have built up in their property. The equity in your home is the difference between the property's market value and the amount you owe on your mortgage. These loans can be used for a variety of purposes, such as home improvements, debt consolidation, or other significant expenses.

Interest paid on these loans is generally deductible if the loan is used for investment purposes, such as purchasing an investment property or shares. However, if the loan is used for personal reasons, like funding a holiday or buying a car, the interest is not tax-deductible. It’s essential to differentiate between these uses to ensure compliance with the Australian Taxation Office (ATO) guidelines.

Current Rates and Requirements

As of 2026, interest rates for equity loans in Australia typically range from 6.49% to 12%, depending on the lender and the borrower's credit profile. Several factors influence these rates, including the size of the loan, the borrower's credit score, and the amount of equity in the property.

Eligibility criteria often require a minimum credit score, adequate equity in your home (usually at least 20%), and a stable income. Each lender may have specific requirements, so it’s crucial to compare options. Esteb and Co can assist you in navigating these options with access to over 83 lenders, providing a tailored solution to meet your needs.

Steps to Deduct Equity Loan Interest

To ensure you can deduct the interest on your equity loan, follow these steps:

1. Determine Loan Purpose: Ensure your loan is used for investment purposes. Clearly document the use of funds to support deductions.
2. Consult a Tax Professional: Engage with a tax advisor to confirm that your loan qualifies for interest deductions based on ATO guidelines.
3. Maintain Accurate Records: Keep detailed records of loan agreements, interest payments, and usage of funds for tax filing purposes.
4. File Your Taxes Correctly: When lodging your tax return, ensure you accurately report your interest payments and claim deductions as advised by your tax professional.

Tips and Considerations

When considering an equity loan, it’s essential to weigh the benefits and potential drawbacks:

• Consultation: Always consult with a financial advisor before taking out an equity loan to ensure it aligns with your long-term financial goals.
• Interest Rates: Be aware of fluctuating interest rates and opt for a fixed rate if you prefer predictable payments.
• Loan-to-Value Ratio (LVR): Maintain a manageable LVR to avoid over-leveraging your property.
• Impact on Equity: Remember that borrowing against your home's equity reduces the equity available, potentially affecting future financial plans.
• Tax Implications: Ensure you understand the tax implications and consult with a tax advisor to maximise deductions legally.

Frequently Asked Questions

1. Can I deduct interest on an equity loan used for personal expenses?
   No, interest on equity loans used for personal expenses is not tax-deductible in Australia.
2. What documents do I need to claim interest deductions?
   You need loan agreements, interest payment records, and documentation showing how the funds were used.
3. How does an equity loan affect my mortgage?
   It increases the total debt against your home, which could affect your mortgage repayments and equity.
4. Is an equity loan the same as refinancing?
   No, an equity loan is a separate loan against your equity, while refinancing involves replacing your existing mortgage with a new one.
5. Can Esteb and Co help me find the best equity loan?
   Yes, with access to over 83 lenders, Esteb and Co can help you find a loan that suits your needs.
6. What happens if I use the loan for mixed purposes?
   You can only deduct the portion of interest related to the investment use; consult a tax advisor for guidance.