Everything You Need to Know About Investment Property Loans

Purchasing a rental property requires a different approach to finance than buying a home to live in.

Lenders assess investment property applications differently, the deposit requirements can vary, and the loan structure you choose will affect both your rental income and your tax position. Understanding how these elements work together means you can make decisions that support your financial goals rather than limit them.

How Investment Property Loans Differ From Owner-Occupier Finance

Lenders treat investment loans as higher risk than owner-occupier home loans and apply stricter serviceability tests. Your application is assessed using a serviceability buffer of at least 3 percentage points above the actual loan rate, and lenders will only count a percentage of your expected rental income when calculating your borrowing capacity, typically between 70 and 80 per cent to account for vacancy periods and maintenance costs.

In our experience, borrowers who assume they can borrow the same amount for an investment property as they could for a home often find their capacity is lower than expected. A buyer with strong income and existing equity might be approved for a certain amount as an owner-occupier, but the same application structured as a property investor loan may come back 15 to 20 per cent lower because of how rental income is assessed and the buffer is applied.

What Deposit Is Required for an Investment Property?

Most lenders require a minimum deposit of 20 per cent of the purchase price to avoid Lenders Mortgage Insurance on an investment property. If your deposit is below 20 per cent, LMI will apply and the premium increases on a sliding scale as your loan to value ratio rises.

Consider a buyer looking at property in Keysborough, where the median house price sits in the mid-$800,000s. A 20 per cent deposit would mean around $170,000 in cash or accessible equity, plus settlement costs including stamp duty and legal fees. If that buyer has a 10 per cent deposit instead, they will need to pay LMI, which could add tens of thousands of dollars to the upfront cost depending on the loan amount and their financial profile. The premium can be capitalised into the loan, but that increases the total amount borrowed and the ongoing repayments.

If you are using equity from an existing property to fund the deposit, lenders will typically allow you to borrow up to 80 per cent of that property's current value. Any equity release above that threshold will also attract LMI.

Interest-Only or Principal and Interest Repayments?

Investment property loans can be structured with either principal and interest repayments or interest-only repayments for an initial period, usually between one and five years.

Interest-only repayments are lower because you are not paying down the loan balance during that period. This can improve your cash flow if the rental income does not fully cover the loan repayments, and it may increase the amount you can claim as a deduction for negatively geared properties under current tax rules. Once the interest-only period ends, the loan reverts to principal and interest and the repayments will increase.

Principal and interest repayments are higher, but they reduce the loan balance over time and build equity in the property. For investors focused on long-term wealth rather than immediate cash flow, this structure reduces the total interest paid over the life of the loan.

Variable or Fixed Interest Rates for Investment Properties

Investor interest rates are typically higher than owner-occupier rates for the same loan structure, and lenders offer both variable and fixed rate options.

A variable rate moves with the market and allows you to make extra repayments or access features like offset accounts without restriction. A fixed rate locks in your repayment amount for a set period, usually between one and five years, but comes with limits on extra repayments and potential break costs if you repay the loan early.

Some investors split their loan between variable and fixed portions to balance certainty with flexibility. The right mix depends on your cash flow, your view on interest rate movements, and whether you plan to sell or refinance in the near term.

Tax Implications and Changes to Negative Gearing

For properties purchased before 12 May 2026, the existing tax treatment applies. Interest on the loan, along with other holding costs such as property management fees, council rates, insurance and depreciation, can be claimed as deductions against your assessable income. If your expenses exceed your rental income, the loss can be offset against other income including your salary.

For properties purchased on or after 12 May 2026, new rules come into effect from 1 July 2027. Rental losses from these properties will be quarantined and can only be offset against other rental income or carried forward to offset future rental income or capital gains. They cannot be offset against salary or wages. Properties that qualify as eligible new builds are exempt from this change and continue to allow negative gearing under the existing rules.

This has shifted the way many investors assess properties. A negatively geared established property in Keysborough purchased now will still provide tax relief in the short term, but from mid-2027 that benefit changes unless the property produces positive rental income or you hold other rental properties with taxable income to absorb the loss.

Structuring Your Loan to Support Future Growth

How you structure your first investment loan affects your ability to borrow again. Lenders assess your entire financial position, including existing debts, when you apply for a second property or seek to refinance.

If you plan to build a portfolio over time, keeping your owner-occupier debt separate from your investment debt makes it easier to manage and gives you more options if you need to refinance or access equity later. Using separate loan accounts for each property, rather than bundling them together, also provides clarity for tax reporting and allows you to make decisions about individual properties without affecting the others.

We regularly see investors who structured their first loan without considering their next step, and it creates complications when they want to expand. A clear structure from the beginning supports growth without requiring costly restructuring later.

Location-Specific Considerations for Keysborough

Keysborough sits within the City of Greater Dandenong and has a mix of established family homes and newer developments, particularly around Keysborough South near the retail and business precinct. Proximity to Parkmore Shopping Centre, the South East Business Park, and access to the Mornington Peninsula Freeway make it a practical choice for tenants working in the southeast or commuting to the city.

Rental demand in Keysborough is supported by a combination of young families and professionals, and vacancy rates in the area have remained relatively stable. Properties with multiple bedrooms and proximity to local schools and transport tend to attract longer-term tenants, which reduces turnover costs and vacancy periods for investors.

When assessing a property in this area, lenders will consider the specific location within the suburb, the property type, and the rental yield. Properties in areas with consistent demand and lower vacancy rates are viewed more favourably and may result in better loan terms or serviceability outcomes.

What Happens If Your Circumstances Change?

If you experience financial difficulty and cannot meet your loan repayments, you have options. Under the National Credit Code, you can submit a hardship notice to your lender, and they are required to respond within a set timeframe and consider changes to your loan arrangement.

This might include a temporary switch to interest-only repayments, an extension of the loan term, or a pause on repayments while you stabilise your situation. The key is to contact your lender or broker as soon as you anticipate difficulty, rather than waiting until you have missed payments.

For investors holding multiple properties, prioritising which loans to address first depends on your long-term strategy, the equity position in each property, and the potential to sell or refinance without triggering significant costs.

How to Move Forward With Your Investment Property Purchase

Before you make an offer, confirm your borrowing capacity and understand how much deposit you will need, what your repayments will look like, and how the loan structure fits with your tax and financial position. Having pre-approval in place gives you confidence when negotiating and ensures you are looking at properties within your financial range.

Laneer Finance Group works with clients across Keysborough and the southeast to structure finance that aligns with both immediate needs and long-term goals. We access investment loan options from banks and lenders across Australia, and we take the time to explain how each option affects your cash flow, tax position and capacity to grow your portfolio.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions