Beginner's guide to investment loans and property

An investment loan lets you borrow to buy an established property and rent it out.

The difference between owner-occupier and investor lending is how lenders assess risk and what loan features you get. Investors generally pay a higher rate, need a bigger deposit, and face tighter serviceability checks. You also get access to interest-only repayments and structures that suit someone holding property for rental income and capital growth rather than living in it.

Deposit and LMI for established investment property

Most lenders want at least a 20 per cent deposit for an established rental property. Anything under that triggers Lenders Mortgage Insurance, which protects the lender if you can't repay the loan. You pay the premium, and it's calculated as a percentage of the loan amount based on your LVR.

Some lenders will go to 90 per cent LVR for investors, but the insurance premium at that level can add tens of thousands to your borrowing. At 10 per cent down, you're looking at LMI that might cost $20,000 or more depending on the loan size and lender. That premium can be added to the loan, but it still increases what you owe and what you pay in interest over time.

If you already own property, you can use equity instead of cash savings. A broker can help structure a loan that pulls equity from your home without needing you to sell or refinance everything. More on that under equity release loans.

Interest-only versus principal and interest

Investment loans give you the option to pay interest only for a set period, usually one to five years. Your repayments cover the interest but don't reduce the loan balance. Once the interest-only period ends, you switch to principal and interest unless you negotiate a new term with the lender.

Interest-only repayments are lower month to month, which can help with cashflow if the rent doesn't quite cover all your costs. The downside is you're not paying down the debt, so you're not building equity through repayments. You're relying on the property's value increasing to build wealth.

Principal and interest repayments are higher but reduce the loan balance over time. If you're buying in an area where rental yield is strong and you can afford the higher repayment, paying down the loan from day one can put you in a better position for future borrowing or refinancing.

Consider a buyer who picks up a unit close to a metro tradie hub and rents it to apprentices or other trades workers. Rent covers most of the loan repayment, and they choose interest-only for the first three years to keep cashflow manageable. After three years, the property's value has lifted, and they refinance to principal and interest at a lower LVR, which gets them a rate discount and starts chipping away at the balance.

Variable or fixed rate for investment borrowing

Variable rates move with the market. If the Reserve Bank cuts rates, your repayment drops. If rates go up, so does your repayment. Most variable investment loans come with an offset account, which lets you park cash in a linked account and reduce the interest you're charged without locking the money away.

Fixed rates lock in your repayment for one to five years. You know exactly what you'll pay, which makes budgeting simpler. The catch is you lose flexibility. Most fixed loans don't offer offset accounts, and if you want to pay extra or refinance before the fixed term ends, you'll pay break costs.

Some investors split the loan, fixing part and leaving part variable. That gives you some certainty and some flexibility. If you're holding the property long term and want to set and forget, a split can work. If you're planning to refinance or access equity in the next couple of years, full variable with offset gives you more control.

What lenders look at when you apply

Lenders assess your income, existing debts, living expenses, and how much rent the property will bring in. They only count 80 per cent of the expected rent when calculating serviceability, which accounts for vacancy, maintenance, and periods where the property might sit empty.

They also apply a serviceability buffer, currently 3 percentage points above the loan rate. So if the investment rate is 6.5 per cent, they assess whether you can afford repayments at 9.5 per cent. That buffer protects you and the lender if rates climb.

If you're self-employed, lenders usually want two years of tax returns and financials. Some accept a single year if your income is strong and consistent. Others offer low-doc options where you declare your income and the lender assesses based on your ABN, GST turnover, or business bank statements. Low-doc loans typically come with a rate loading and lower maximum LVR. More detail on that under low-doc loans for tradies.

Debt-to-income caps came in from February this year. Lenders can only write 20 per cent of new investor loans at a DTI of 6 times gross income or higher. If you earn $100,000 and already owe $500,000 on your home, you're at a DTI of 5. Adding another $200,000 for an investment property pushes you to 7, which puts you in the restricted bucket. Not every lender will knock you back, but some will, and others will price the loan higher or ask for a bigger deposit.

Negative gearing and the changes from July 2027

Negative gearing means your rental income is less than your loan interest, property management, insurance, rates, and other holding costs. You run at a loss, and under current rules you can offset that loss against your wage or business income to reduce your tax.

From 1 July 2027, that changes for established properties bought after 7:30pm on 12 May 2026. Rental losses on those properties can only be offset against other rental income or carried forward to offset future rental income or capital gains when you sell. You can't claim them against your wages anymore.

If you bought before that date and time, you're grandfathered. Your property can still be negatively geared under the old rules until you sell. If you exchanged contracts before 12 May 2026 but settled after, you're also grandfathered.

Properties that qualify as new builds still get full negative gearing. That means properties built on vacant land or developments that increase the number of dwellings. Knock-down rebuilds that don't add dwellings don't qualify, and neither do renovations. If a new build is lived in for more than 12 months before it's sold to an investor, the next buyer loses access to negative gearing.

For tradies buying established property now, you're caught in the transition period. Properties bought between 12 May 2026 and 30 June 2027 can be negatively geared under old rules until 30 June 2027 only. After that, losses are quarantined.

Capital gains tax and the indexation change

When you sell an investment property, you pay capital gains tax on the profit. Under current rules, if you hold the property for more than 12 months, you get a 50 per cent discount on the gain before it's added to your taxable income.

From 1 July 2027, that discount is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains. Indexation adjusts your purchase price for inflation, so you're only taxed on the real increase in value, not the portion caused by CPI.

The change only applies to gains that accrue after 1 July 2027. If you bought a property before that date, any gain up to 30 June 2027 is still calculated under the old 50 per cent discount. Only the gain from 1 July 2027 onwards uses indexation and the minimum rate.

New build properties get an election. You can choose between the 50 per cent discount or indexation with the minimum rate, whichever works out better when you sell.

If you're on a government income support payment in the year you sell, the 30 per cent minimum rate doesn't apply. Your gain is taxed at your marginal rate after indexation.

Rental income, vacancy, and cashflow

Lenders assume an 80 per cent rental yield when they assess your application. If the property could rent for $500 a week, they only count $400. That accounts for vacancy, repairs, property management fees, and the weeks where the place sits empty between tenants.

In reality, vacancy rates vary by location and property type. Units near major employment hubs tend to have lower vacancy than houses in outer suburbs. Properties that suit trades workers, shift workers, or apprentices can hold tenants well if they're priced right and close to work.

You need to budget for body corporate fees if you're buying a unit, council rates, insurance, and property management if you're not handling tenants yourself. Management fees are usually 6 to 8 per cent of the rent plus GST, and letting fees are usually one to two weeks' rent when a new tenant moves in.

If your rental income doesn't cover all your costs, you're subsidising the property out of your wages. That's fine if you've planned for it and can afford the gap. If you haven't, you're one interest rate rise or one long vacancy away from a cashflow problem.

How refinancing an investment loan works

Refinancing means switching your loan to another lender or renegotiating with your current one. Investors refinance to get a lower rate, access equity, switch from interest-only to principal and interest, or consolidate debt.

If your property has increased in value since you bought it, refinancing at a lower LVR can unlock rate discounts and remove LMI from the equation. Some lenders also offer better features or lower fees than what you're currently on.

You can also refinance to pull equity out for a deposit on a second property. If your first investment property has gone up $100,000 in value and you've paid down $30,000, that's $130,000 in equity. You can borrow against that to fund your next purchase without needing to save another deposit from scratch.

Refinancing has costs. Application fees, valuation fees, discharge fees from your old lender, and sometimes settlement fees with the new one. If you're on a fixed rate, break costs can run into thousands depending on how much time is left and how far rates have moved. A broker can calculate whether the saving from a lower rate outweighs the cost of switching. More under investment loan refinancing.

Interest rate discounts and loan features

Investment loan rates vary by lender, deposit size, and loan amount. Bigger deposits and bigger loans generally get bigger discounts. A 30 per cent deposit might get you a rate 0.3 to 0.5 per cent lower than a 10 per cent deposit.

Some lenders offer discounts for bundling your home and investment loans with them, or for taking out insurance through them. Others offer discounts if you have a high income or a strong credit history. Those discounts are negotiable, and a broker has access to rate sheets and lending policies across dozens of lenders.

Offset accounts are the most useful feature on a variable investment loan. Every dollar in the offset reduces the balance you're charged interest on. If you have $20,000 sitting in offset and a $400,000 loan, you only pay interest on $380,000. The interest saving is the same as if you'd paid $20,000 off the loan, but the cash is still available if you need it.

Redraw facilities let you pull back extra repayments, but some lenders restrict how often you can redraw or charge fees. Offset is more flexible.

Building a portfolio and using equity

Once you own one investment property, you can use the equity in it to buy another. Lenders will let you borrow up to 80 per cent of the property's value without LMI, sometimes 90 per cent with it.

If your first property is worth $600,000 and you owe $400,000, you have $200,000 in equity. At 80 per cent LVR, you can borrow up to $480,000 against that property. You already owe $400,000, so you can access $80,000 in usable equity. That $80,000 becomes the deposit for your next purchase.

Lenders assess each new loan the same way they assessed your first. They look at your income, debts, expenses, and rental income from all properties. The more properties you add, the tighter serviceability becomes, especially with the debt-to-income caps in place.

Some investors hit a borrowing limit after two or three properties. Others structure their loans differently, use trusts or companies, or bring in a partner to keep expanding. Portfolio growth depends on income, equity, and how much risk you're comfortable carrying. More under expanding your property portfolio.

Call one of our team or book an appointment at a time that works for you. We'll step through your income, your deposit, and what loan structure actually fits what you're trying to build.

Frequently Asked Questions