Rising interest rates and falling house prices are a double whammy for home owners as they watch their mortgage payments go up and the equity in their property fall. Nevertheless, holding on to that home should be a priority because it would cost at least $50,000 to sell up, rent elsewhere and then buy again.

Fortunately, for those in the know, there is a little-known tax regulation called the six-year rule that can help to ease the burden.

The tax rules are such that you can claim a tax deduction for interest on a loan only if the purpose of borrowing is to buy income-producing assets, such as investment property or shares. This is why you can't claim interest on your home loan and why you can claim it on a loan to buy an investment property.

But a loan can change character. If you move out of your residence and rent it out, all outgoings, including interest, are tax deductible from the moment the property is available for rent. The fact that a loan can change character provides a window of opportunity for anyone suffering mortgage stress - let's illustrate how.

Suppose the Joneses want to buy their first home for $300,000. If they can find a $30,000 deposit and use the first home owners' grant for the purchase costs, they would have to borrow $270,000 on which the interest alone would be $1912 a month.

Costs of ownership, such as rates and maintenance, would add another $170 a month, so their total payments would be $2082 a month, or $479 a week. They can't claim tax deductions but they won't have to outlay $350 a week for rent. Buying instead of renting means they are $129 a week worse off but they hope that capital growth will more than compensate for the $6708 a year they now have to make up.

Now think about their friends, who buy a similar $300,000 property for investment and rent it out for $350 a week. They take an interest-only loan of $270,000, which will cost $1912 a month in interest, and they are still up for $170 a month in maintenance.

Because the property is for investment, these costs will be tax deductible. Let's assume the building will generate $5000 a year in depreciation and building allowances, which they can claim on their tax, even though they do not require an immediate outlay of money.

The difference between the net rent and the outgoings will create a cash shortfall of $6784 a year but their total loss for tax purposes will be $11,784 a year when the depreciation allowances are taken into account.

If they are in the 31.5 per cent tax bracket, this will create a tax refund of $3711, which means the total shortfall is only $3073 a year, or about $59 a week.

Notice how the system is skewed towards the investor and against the owner?

So home owners suffering mortgage stress could use the six-year rule to their advantage by moving out of their existing residence and renting a similar one.

They would then be able to claim all the outgoings on their rented-out home as a tax deduction and there would be a hefty amount of non-cash deductions if the properties were fairly new.

This would substantially reduce the pressure on their budgets. As long as they return to their original home before the six years are up, the capital gains tax exemption will not be lost.

But what happens if you haven't entered the market yet because of affordability and wanted to get started?

The First Home Owner Grant was introduced to make ownership more affordable.

The grant, and the ability to apply your main residence exemption to your rental property while still living with your parents, make home ownership attainable. However, there is no getting around the rule that you must live in the rental property for six months first - and this period must start within the first 12 months of owning the property.

After that, you are free to move back with your parents and rent the property out for up to six years and still exempt it from capital gains tax as your main residence. The grant helps you with the deposit, while tenants and the Tax Office will pay your mortgage.

Provided you reoccupy it within six years, it will be free of capital gains tax and you will have enjoyed all the benefits of negative gearing while still living at home.

A word of warning: while living in the property, do not be tempted to take in boarders. If they pay you more than their share of food, electricity and phone, you have to declare the whole arrangement as a rental property, apportioning the expenses between you and them. From the day they move in, your cost base is reset to the market value at that time and only a portion of the house is covered by the main residence exemption.

Saving Tax On Your Investment Property, Noel Whittaker's latest book, is co-authored with Julia Hartman and published by Simon & Schuster, $29.95rrp.