Investment Property Loans: What You Need to Know

Investment property loans are structurally different from owner-occupier home loans in ways that matter significantly to your tax position, borrowing capacity, and long-term wealth strategy. Getting the structure right from the start can be worth tens of thousands in tax savings.

Key differences from owner-occupier loans

• Higher rates: Investment loans typically carry a 0.2–0.6% rate premium over equivalent owner-occupier loans
• Higher deposit requirement: Most lenders require 10–20% (compared to 5% for FHBs with guarantees)
• Interest-only option: Many investors choose interest-only repayments to maximise tax deductibility and cash flow
• Rental income counted: 80% of gross rental income can be used to service the loan
• Negative gearing: If rental income is less than expenses (including interest), the loss is tax-deductible

Interest-only vs principal & interest

Interest-only repayments keep your monthly outgoings lower and maximise the deductibility of interest costs (since the entire repayment is interest — not capital). However, you're not building equity during the interest-only period, and most lenders cap IO periods at 5–10 years. Principal & interest repayments build equity faster but at the cost of higher monthly cash outflows.

Using equity to buy your first investment property

If you already own a home with equity, you can often use that equity as security for an investment purchase — effectively borrowing 100% of the investment property cost. This strategy is called "cross-collateralisation" when done across the same lender, but most experienced brokers recommend keeping the properties with separate lenders to protect your overall security position.