The loan structure you choose for an investment unit affects your cash flow, your borrowing capacity and how much tax planning you need to do before you sign a contract.
This article is for Curtin-based investors who are close to buying a unit and need to decide how to structure the finance. It covers deposit, repayment type, costs that sit outside the loan, and a tax change to raise with your accountant. Our investment loans page covers the wider product range.
How Much Deposit Do You Need for an Investment Unit?
Lenders generally require an investor deposit of at least 20% to avoid Lenders Mortgage Insurance (LMI), but each lender sets its own policy, and some lend above 80% loan to value ratio (LVR) with LMI. That 20% is lender policy, not a government rule. Lending above 80% LVR usually needs approval from both the lender and the mortgage insurer.
The trade-off with borrowing above 80% is cost. The borrower pays the LMI premium, and the amount depends on the loan size and LVR. A smaller deposit also means a larger loan and higher repayments. Offset account balances do not reduce the loan amount when the lender measures LVR, so parking savings in an offset will not change which LVR bracket you fall into.
Interest-Only vs Principal and Interest on an Investment Loan
Interest-only repayments are lower at first, but they do not reduce the loan and they do not increase how much you can borrow. Principal and interest repayments cost more each month but pay the debt down.
Consider an investor taking a $500,000 loan at an illustrative rate of 6.75% p.a. Interest-only repayments would be about $2,813 a month. Principal and interest over 30 years at the same rate would be about $3,243 a month. That is roughly $430 a month less during the interest-only period.
The investor chooses a five-year interest-only period to ease early cash flow. After that, repayments switch to principal and interest over the remaining 25 years. At the same illustrative rate, that is about $3,455 a month, and the balance is still $500,000. The investor has saved around $430 a month for five years, but now pays about $640 a month more than the interest-only figure, with no debt reduction to show for it.
The lender also assesses interest-only loans over the shorter remaining term, so the interest-only feature does not lift borrowing capacity. APRA expects lenders to assess whether you can meet principal and interest repayments over the remaining term, excluding the interest-only period. You can test different amounts with our borrowing capacity tools, and we can run the numbers with you when calculating investment loan repayments.
Only the interest portion of a repayment is deductible, under either structure. The principal portion is a repayment of capital. Your accountant can confirm how this applies to you.
How Do Lenders Count Rental Income on a Unit?
Lenders generally count no more than 80% of expected rent when they assess an investment loan application. APRA's guidance expects a minimum 20% haircut to allow for periods when the property is vacant.
That haircut is not for management fees, repairs or other holding costs. Those costs still come out of your cash flow. Lenders also tend to place less weight on a rental appraisal than on actual rent received, so a unit that already has a tenant can be assessed differently from one that is vacant. How each lender treats this varies, which is why comparing investment loan options before you commit matters.
All authorised deposit-taking institutions (banks, credit unions and building societies) must also test your ability to repay at a rate at least 3 percentage points above the loan rate. Non-bank lenders are not bound by that buffer, but they set their own credit policies.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Pollux Financial today.
What Costs Sit Outside the Loan Repayment?
The loan repayment is only one part of holding a unit. Body corporate levies, insurance, council rates and property management fees all reduce your cash flow, and they continue whether or not the unit is tenanted.
Buy-and-hold investors often focus on the repayment and overlook these costs. Ask for the body corporate records before you buy, and build the levies into your cash flow. A unit with large upcoming expenses can affect your returns, even when the loan repayments look manageable.
Council rates, insurance, property management fees, repairs and depreciation are deductible under ATO rules for the period the property is rented or genuinely available for rent. Your accountant can confirm which costs apply to your unit.
Negative Gearing Rules Have Changed for Established Properties
From the 2027-28 income year, net rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income. This includes capital gains on residential property. Excess losses can be carried forward.
Properties held at that time, including those under contract, keep the current treatment until sold. Eligible new builds acquired after that date can also continue to deduct losses against all income. Eligible new builds include dwellings on previously vacant land and dwellings that replace an existing property where the dwelling count increases. A unit that has been occupied for more than 12 months before sale to a later investor loses that access.
For an established unit bought now, current rules apply until 30 June 2027 only. This does not change whether the interest is deductible, but it changes how a loss can be used. Negative gearing benefits therefore depend on whether the unit is new or established, so discuss your position with your accountant before you buy.
The 50% capital gains tax discount also changes from 1 July 2027. Cost base indexation and a 30% minimum tax rate on real gains will apply to gains from that date. Your accountant can explain how this affects your sale plans.
Should You Consider Refinancing Later?
Refinancing can suit an investor whose interest-only period is ending or whose loan no longer suits their needs. The trade-off is cost, because discharge fees, valuation fees and other charges vary by lender. Our refinancing team can compare options with you when the time comes.
If you use equity from the unit for personal spending, the interest on that portion is generally not deductible. The ATO looks at how borrowed funds are used. Keep investment and private borrowings separate, and ask your accountant before drawing on equity.
We work with Curtin investors and other Canberra clients, and you can read more on our Curtin mortgage broker page. Call one of our team or book an appointment at a time that works for you, and we will help you structure the loan before you make an offer.
Frequently Asked Questions
Does an interest-only investment loan increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so the feature does not lift borrowing capacity.
How much rental income do lenders count on an investment unit?
APRA's guidance expects lenders to count no more than 80% of expected rent. Each lender sets its own policy on the evidence it accepts, such as appraisals or actual rent.
Is LMI required on an investment loan?
LMI is generally required when the LVR is above 80%. That threshold is lender policy and not a legal borrowing limit, and the premium is paid by the borrower.
Has negative gearing changed for new investors?
From the 2027-28 income year, losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only offset residential property income. Eligible new builds are treated differently, so speak with your accountant.
