Do you know refinancing can fund your business?

Refinancing to pull equity out for business purposes

You can refinance your home loan to release equity and use that cash to fund a business. The lender replaces your existing mortgage with a new one at a higher loan amount, and the difference gets paid into your account. That cash can go toward buying equipment, setting up a workshop, or covering startup costs if you're moving from wages to contract work.

Consider a heavy diesel mechanic working two weeks on, one week off in the Pilbara. He owns a home with $180,000 in usable equity and wants to buy a ute, tools, and a shipping container workshop to start taking on side work during his weeks off. Instead of a business loan at 9% or higher, he refinances his mortgage, pulls out $120,000, and keeps the rest as a buffer. The repayments sit inside his home loan at a lower rate, and he can salary sacrifice or offset the balance when he's cashed up between rosters.

Refinancing for business purposes works when your property has gained value, you've paid down the loan, or both. Most lenders will let you borrow up to 80% of your property's current value without paying lenders mortgage insurance. Anything above that usually triggers LMI, which adds cost. If you're pulling out a large amount and your deposit falls below 20%, expect the insurer to ask what the money is for and whether the business income is provable.

Why this appeals to FIFO heavy diesel mechanics

Heavy diesel mechanics on site often see the same pattern. Wages are solid, roster is reliable, but the work is hard and the lifestyle wears you down after a few years. Starting a business gives you a fallback, but getting finance as a contractor or sole trader before you've filed two years of tax returns is difficult. Refinancing to access equity lets you fund the business while you're still on wages and still have a clean serviceability story.

You're also likely to have tools, tickets, and a client base already forming on the side. The gap is usually capital. A workshop, a second ute, or a proper toolbox setup can cost $80,000 to $150,000. A business loan at commercial rates makes the numbers tight. Refinancing at residential rates means the repayments stay manageable even if the business takes time to ramp up.

Another advantage is flexibility. You're not locked into a repayment schedule tied to the business. If work slows, you can lean on your offset account or redraw to smooth out cashflow. If the business takes off and you want to restructure later, you can split the debt or move it into a different vehicle once you've got financials to support it.

How lenders assess equity release for business use

Lenders treat this as a standard refinance with a cash-out component. They value your property, calculate how much you can borrow based on that valuation, and subtract what you owe. The difference is your available equity. Most will lend up to 80% of the property value without LMI, so if your home is worth $500,000 and you owe $280,000, you could borrow up to $400,000, giving you $120,000 in cash.

The refinance application looks at your income, expenses, and whether you can service the new loan amount. For FIFO workers, lenders familiar with rostered income will assess your wage properly. Others might average it or haircut it, which can reduce what you're approved for. If the equity release pushes your borrowing above 80%, the LMI provider will ask how you're using the funds. Saying "business investment" usually means they'll want to see a plan or financials, even if the business hasn't started yet.

Some lenders are more relaxed about cash-out refinances than others. If you're pulling out a significant amount and your loan-to-value ratio climbs, expect more questions. Brokers who work with FIFO clients regularly know which lenders will approve equity release for business use without requiring a full business case upfront.

What you can and can't use the equity for

You can use released equity for any lawful purpose. That includes buying tools, equipment, vehicles, or property for business use. You can also use it to pay contractors, cover startup costs, or fund working capital while you're getting the business off the ground. Some mechanics pull equity to buy a second property and set up a workshop on the land. Others use it to pay out a ute loan or consolidate debt before transitioning to contract work.

You can't use it to fund a business that the lender considers too speculative or high-risk, particularly if the loan-to-value ratio is already tight. If you're borrowing above 80% and the LMI provider doesn't like the business use case, the application can stall. That's less of an issue if you're staying under 80% or if the business is directly related to your trade.

Another thing to be aware of: once the equity is released and sitting in your account, it can affect your borrowing capacity if you're planning to buy an investment property or refinance again soon. Cash in the bank doesn't count as equity, and lenders will ask what you're doing with it. If you're planning multiple moves, sequence them properly.

Tax treatment and structuring the debt

When you use equity from your home loan to fund a business, the interest on that portion of the debt is usually tax-deductible as a business expense. The rest of your mortgage, the part tied to your home, stays non-deductible. Keeping the two portions separate in your loan structure makes tax time cleaner. Most brokers will set this up as a split loan: one split for the original home debt, one split for the business component.

If you don't split the loan and the funds mix together, your accountant has to apportion the interest each year based on how much was used for business versus personal purposes. That's manageable but annoying. Splitting it upfront means the interest on the business split is fully deductible without any calculation.

Some mechanics also set up the business split as interest-only for the first few years to keep cashflow light while the business establishes. You can still make extra repayments if you want, but you're not obliged to. Once the business is running and generating income, you can switch it to principal and interest or restructure entirely. A broker familiar with investment loan structures can set this up so it works for both your short-term cashflow and your long-term tax position.

When refinancing for equity release doesn't make sense

Refinancing to fund a business works when your property has enough equity, your income can service the higher loan, and the business use case is solid. It doesn't work if you're already borrowed to the limit, your property hasn't increased in value, or your serviceability is tight.

If you're still within a fixed rate period and the break costs are high, pulling equity out early can cost you more than the business loan would have. If your property is in a location where values have dropped or stagnated, the valuation might come in lower than expected, leaving you with less equity than you thought. And if your expenses have increased or your roster has changed recently, the lender might not approve the higher loan amount even if the equity exists.

Refinancing also resets your loan term unless you specify otherwise. If you've been paying your mortgage for ten years and you refinance to a new 30-year loan, you're extending the debt and increasing the total interest paid. You can avoid this by keeping the same remaining term or making extra repayments, but it's something to be aware of.

How long the process takes and what's involved

A refinance with equity release takes roughly the same time as a standard refinance, usually four to six weeks from application to settlement. The lender orders a valuation, assesses your income and expenses, and issues a formal approval. Once approved, your solicitor or conveyancer handles the discharge of your old loan and the registration of the new one. The cash gets paid to you at settlement.

You'll need to provide payslips, bank statements, and proof of the property value. If you're pulling out a large amount or borrowing above 80%, the lender may ask for a letter explaining what the funds are for. That doesn't need to be a formal business plan, just a clear explanation of how the money will be used.

If you're planning to leave your FIFO role and go contracting soon after the refinance, don't mention that in the application. Lenders assess your current income, not your future plans. Once the loan is approved and settled, what you do with your employment is your business. If you're already contracting or self-employed, the process is different and you'll need tax returns and financials. In that case, a low doc loan or a lender that accepts alternative income verification may be required.

Serviceability when you're planning to reduce your roster

Some mechanics refinance to fund a business because they want to drop from a two-week roster to a one-week roster, or step back entirely. The challenge is that lenders assess your current income, and if you tell them you're planning to reduce your hours, they'll assess the lower income. That can reduce your borrowing capacity and kill the application.

The way around this is to apply while you're still on your full roster and your income is at its highest. Once the loan is approved and settled, you can adjust your work arrangements. The lender can't reverse the approval because your employment situation changed after settlement, provided you didn't misrepresent anything in the application.

If you're already on a reduced roster or between contracts, the application is harder. Some lenders will accept a letter from your employer confirming you're returning to full rosters, but that only works if it's true and verifiable. If you're genuinely transitioning away from site work, you may need to wait until the business has been operating for a financial year and you can prove income that way.

Offset accounts and redraw when you're using equity for business

Once you've pulled equity out and the cash is sitting in your offset account, it reduces the interest charged on your home loan. That's useful if you're not spending the money immediately, but it also means you're not earning any deduction on that portion of the loan yet. The interest deduction only kicks in once the money is spent on business purposes.

Some mechanics prefer to draw the funds and park them in a separate business account so the interest starts being deductible straight away. Others leave it in the offset to reduce their overall interest bill, then draw it down as they need it. Both approaches work, but the tax outcome is different. Your accountant can tell you which structure suits your situation.

Redraw works similarly, but with one important difference. If you make extra repayments into a business loan split and then redraw those funds for personal use, you lose the tax deduction on that portion. The ATO treats redrawn funds based on what they're used for, not where they came from. If you think you'll need flexibility to pull money in and out, an offset account is cleaner.

Call one of our team or book an appointment at a time that works for you. We'll walk through your equity position, work out how much you can access, and structure the loan so the interest deduction is clear and the repayments fit your roster.

Frequently Asked Questions