Everything You Need to Know About Investment Loans

What Is an Investment Loan and How Does It Differ from a Home Loan?

An investment loan is a mortgage product designed specifically for purchasing property you intend to rent out rather than live in. Lenders assess these loans differently because the security risk and income profile differ from an owner-occupied mortgage.

The key distinction sits in how lenders calculate your borrowing capacity. When assessing a new borrower's capacity to service an investment loan, lenders must apply an interest rate buffer of at least 3.0 percentage points above the loan product rate. This buffer applies to all loans, but investment loans also face portfolio limits and higher capital requirements under prudential regulations.

Rental income from the property can be included in your application, though most lenders apply a discount of 20 per cent to account for vacancy periods and maintenance costs. If you are purchasing a unit in a complex with shared facilities, expect questions about body corporate fees, as these reduce your net rental return and therefore your borrowing capacity.

Investment Loan Deposit and LVR Requirements

Most lenders require a minimum 20 per cent deposit for investment property finance to avoid Lenders Mortgage Insurance. LMI is generally required by lenders on residential loans where the loan-to-valuation ratio exceeds 80 per cent. The premium is calculated on a sliding scale based on both the loan amount and LVR, and it can add several thousand dollars to your upfront costs.

Some lenders will accept a 10 per cent deposit if you pay LMI, but this pushes your LVR to 90 per cent and increases both the premium and the interest rate. Investment loans and interest-only loans generally attract higher risk weights than owner-occupied principal-and-interest loans at the same LVR under prudential standards. This translates to higher pricing from the lender.

You can also use equity in an existing property as your deposit. Lenders will value your current property, calculate the available equity after retaining a 20 per cent buffer, and apply that amount toward the deposit and costs on your investment purchase. This approach allows you to leverage equity without selling an asset, though it does increase your overall debt.

Debt-to-Income Limits and Borrowing Capacity

From 1 February 2026, lenders may approve up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowing, including the new investment loan, exceeds six times your gross annual income, you will either need to reduce the loan amount, increase your deposit, or seek a lender with capacity remaining under the quarterly limit.

Consider a buyer earning $120,000 per year who already has a home loan of $500,000. Adding an investment loan of $400,000 would bring total debt to $900,000, or 7.5 times income. That application would fall into the restricted category and may be declined if the lender has already allocated its 20 per cent quota for the quarter.

The limits apply separately to the owner-occupier and investor lending portfolios of each institution and apply to new lending only. Existing borrowers are not affected, but anyone applying for a new investment loan from February 2026 onward is subject to the rule. Non-bank lenders are not currently subject to the DTI limit, which can make them a viable alternative if your application is declined by a bank.

Interest Rate Options: Variable, Fixed, or Split

Investment loan interest rates are typically 0.30 to 0.50 percentage points higher than equivalent owner-occupied rates. This reflects the higher risk weighting and capital cost lenders must hold against investor lending portfolios.

A variable rate gives you flexibility to make additional repayments and redraw funds without penalty, which can be useful if rental income varies or you plan to pay down the loan ahead of schedule. A fixed rate locks in your repayment amount for one to five years, providing certainty during periods of rising rates but removing the ability to make extra repayments beyond a capped amount.

Some investors split their loan between variable and fixed portions to balance certainty with flexibility. If you are considering refinancing an existing investment loan to access a lower rate or release equity, a split structure can reduce break costs if you need to exit the fixed portion early.

Interest-Only Repayments and Cash Flow Management

Interest-only repayments reduce your monthly commitment by deferring principal repayments for a set period, usually five years. This structure is common among property investors who prioritise cash flow and intend to rely on capital growth rather than debt reduction to build equity.

An interest-only loan does not reduce the loan balance during the interest-only period, so the total interest cost over the life of the loan is higher than a principal-and-interest loan. When the interest-only period ends, repayments revert to principal and interest, and the monthly amount increases significantly.

A long-term interest-only residential loan is classified as non-standard where the LVR is greater than 80 per cent and the contractual interest-only period is greater than five years or is not specified. Non-standard loans attract higher capital requirements and are priced accordingly, so most lenders limit interest-only terms to five years at approval.

Tax Considerations for Investment Property Borrowing

Interest on borrowings used to acquire or hold residential rental property is deductible against assessable income to the extent the property is rented or held to produce assessable income. This means you can claim the interest expense against your rental income and other income sources, reducing your taxable income.

Under the Income Tax Assessment Act 1997 (Cth), losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. If you purchased or contracted to purchase your investment property before that date, you retain full negative gearing treatment regardless of when settlement occurs.

From the 2027-28 income year, losses related to established residential investment properties acquired after 7:30pm AEST on 12 May 2026 are deductible only against other income from residential properties, including capital gains on residential properties. Excess losses can be carried forward to offset residential property income in future years, but they cannot be claimed against salary or business income.

If you are purchasing a new build, the property remains eligible for full negative gearing under the exemption. Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. A knock-down rebuild that does not increase dwelling numbers does not qualify.

Applying for an Investment Loan: What Lenders Assess

Lenders assess your income, existing debts, living expenses, and the rental income the property is expected to generate. They will also review your employment history, credit file, and any other liabilities such as personal loans or car finance.

Rental income is treated as part of your serviceability, but most lenders apply a 20 per cent shading to account for vacancy periods and maintenance. If the property is in a regional area with a higher vacancy rate, some lenders may apply a larger discount or require a lower LVR.

You will need to provide recent payslips, tax returns if you are self-employed, a rental appraisal from a licensed agent, and a contract of sale or signed offer. If you are using equity from an existing property, the lender will also require a valuation of that property to confirm available equity.

Investment Loan Features and Offset Accounts

Some investment loans include an offset account, which is a transaction account linked to your loan. The balance in the offset account reduces the loan balance on which interest is calculated, lowering your interest cost without reducing the deductible interest expense.

Offset accounts are more common on variable rate loans. Fixed rate loans typically do not offer offset functionality, though some lenders provide a partial offset or redraw facility instead.

An offset account can be particularly useful if you are holding surplus cash while waiting to deploy it into another investment or renovation. The tax treatment of offset accounts is more favourable than making additional repayments, as the interest deduction is preserved on the full loan balance.

Investment Property Loans for Mandurah Buyers

Mandurah sits within the Peel region and has seen consistent interest from Perth-based investors seeking coastal rental demand and proximity to employment hubs. The suburb attracts tenants working in local services, construction, and tourism, as well as retirees and sea-changers looking for affordable waterfront access.

Rental yields in Mandurah have historically been higher than inner Perth suburbs, though investors should account for seasonal vacancy fluctuations tied to tourism. Properties near the Mandurah Ocean Marina and the eastern canal estates tend to attract longer-term tenants, while units further from the water may experience higher turnover.

If you are purchasing in a strata complex, lenders will review the body corporate records to confirm the sinking fund is adequately maintained and there are no special levies pending. This is particularly relevant for canal-side developments with shared jetties and maintenance obligations.

Investment Loan Application Process and Timeline

Once you have identified a property and prepared your supporting documents, the application process typically takes two to four weeks from submission to formal approval. Conditional approval can be issued within a few days if your financial position is straightforward and the property is a standard residential dwelling.

If the property is a unit, the lender will review the strata report and may request additional information about the sinking fund or any planned works. If you are borrowing above 80 per cent LVR, the lender will also order an LMI assessment, which adds a few days to the timeline.

Settlement usually occurs four to eight weeks after the contract is signed, depending on the terms negotiated with the vendor. Your broker will coordinate with the lender and your solicitor to ensure funds are available on the settlement date.

Call one of our team or book an appointment at a time that works for you. We can review your borrowing capacity, compare investment loan options from lenders across Australia, and structure the application to suit your property investment strategy.

Frequently Asked Questions