Home Equity Loan Interest – Maximize Deductions Fast (2026)

Are you a homeowner in Australia considering tapping into the equity built up in your home? Perhaps you're thinking about taking out a home equity loan for renovations, debt consolidation, or a new investment opportunity. A big question on your mind might be: can you deduct the interest from a home equity loan on your taxes? Understanding this can help you make more informed financial decisions and potentially save money.

Understanding Home Equity Loans and Interest Deduction

A home equity loan allows you to borrow against the equity you've built up in your home. Equity is the difference between your home's current market value and the outstanding balance on your mortgage. These loans can be an attractive option as they often come with lower interest rates compared to unsecured personal loans.

In Australia, the tax treatment of interest on a home equity loan depends largely on how you use the borrowed funds. Unlike in countries such as the United States, where mortgage interest can be deductible under certain conditions, the tax rules in Australia are more stringent. Generally, the interest on a loan is tax-deductible only if the borrowed funds are used to generate taxable income. This means if you're using the home equity loan for investment purposes, such as purchasing an investment property or buying shares, you may be able to deduct the interest. However, if you're using it for personal expenses, like home renovations or a holiday, the interest is typically not deductible.

Current Interest Rates and Eligibility Requirements

As of 2026, home equity loan interest rates in Australia generally range from 6.49% to 12%, depending on the lender, your financial situation, and the amount of equity in your home. It's important to shop around and compare offers to find the best deal. Esteb and Co can assist you in navigating options from our panel of 83+ lenders to find a rate that suits your needs.

Eligibility for a home equity loan typically requires:

• At least 20% equity in your home.
• A good credit score, often above 600.
• Stable income and employment history.
• Ability to demonstrate the purpose of the loan, especially if seeking interest deductibility.

Steps to Determine Interest Deductibility

1. Identify the use of funds: Determine if the loan funds will be used for income-producing activities. For example, investing in a rental property or shares.
2. Consult with a tax advisor: Before proceeding, consult with a tax professional to ensure your intended use qualifies for interest deductibility.
3. Keep detailed records: Maintain documentation of how the loan funds are used to support any claims for interest deductions.
4. File your tax return: When it’s time to file, include the interest deduction in your tax return, supported by the documentation you’ve kept.

Expert Tips and Considerations

• Consider future plans: If you plan to convert your primary residence into an investment property in the future, keeping records of your home equity loan usage now can be beneficial.
• Understand loan terms: Be clear about the loan term and any associated fees that might affect your overall financial strategy.
• Evaluate refinancing options: If your interest rate is high, consider refinancing your home equity loan to potentially lower your rate and increase savings.
• Consult with Esteb and Co: Utilise the expertise of Esteb and Co’s access to a broad panel of lenders to explore competitive options tailored to your situation.

Frequently Asked Questions

• Can I deduct interest if I use the loan for home renovations? Generally, no. Interest is only deductible if the funds are used for income-producing purposes.
• What if I use part of the loan for investment and part for personal use? The interest can be apportioned. Only the portion used for investment purposes is deductible.
• Are there any limits to how much interest I can deduct? No specific limits, but deductions must correspond to the portion of the loan used for income-generating activities.
• Can I refinance my home equity loan? Yes, refinancing can help secure a better rate. Consult with your lender or a broker like Esteb and Co for options.
• What happens if my financial situation changes? Inform your lender as soon as possible to discuss potential adjustments to your loan.
• Is a home equity loan the same as a line of credit? No, they differ in structure. A home equity loan provides a lump sum, whereas a line of credit allows for flexible withdrawals.
• How does a home equity loan affect my mortgage? It increases your total debt, so ensure you can manage the repayments alongside your mortgage.