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Investment property finance: borrowing, equity and loan structure

Christian Tucker
Oct 19
6 min read

Updated: Oct 22

Insights from AGFB · Checked 2 October 2026 · About 6 minutes

In brief

  • Investor loans are often priced higher than owner-occupier loans, and lenders usually count only part of the expected rent.

  • Equity in your home can fund the deposit and costs, usually through a separate loan split.

  • Interest deductibility generally follows what the money is used for, so mixing private and investment spending in one loan can complicate your records.

  • Standalone security, a cash buffer and a full count of costs can matter as much as the rate.

How do investor loans differ?

Lenders treat a rental differently from the home you live in. Reserve Bank data shows average rates on new investor loans sitting above those for owner-occupiers.

Borrowing more than 80% of the value usually means lenders mortgage insurance, and each lender sets its own maximum for investment loans. Stamp duty and other costs come on top, so you usually need more than a 20% deposit in cash or equity.

How lenders count rent

Lenders rarely count the full rent. APRA's guidance to banks treats a cut of at least 20% to expected rental income as prudent, with bigger cuts where vacancy risk is higher, so $600 a week may be assessed as $480 or less.

Rent shown on a lease or statements usually carries more weight than an appraisal. APRA's cap on the share of new bank lending at six times income or more also applies to investor loans separately, as our article on how lenders work out your borrowing power explains.

Using the equity in your home

Equity is the gap between what your home is worth and what you owe. Lenders often let you borrow up to 80% of the value without lenders mortgage insurance, subject to a valuation and your ability to repay the total debt.

Say your home is valued at $900,000 and you owe $450,000 (a hypothetical example). At 80%, total lending against it could reach $720,000, so up to $270,000 may be available. That could cover a 20% deposit and costs on a $700,000 rental, with the other $560,000 borrowed as a separate investment loan.

It can help to have the equity released as its own split, used only for the purchase. Simply topping up your home loan can blend two purposes into one balance.

Why keep personal and investment borrowing apart?

The ATO generally looks at what borrowed money is used for, not which property secures it. In one of its examples, money redrawn from a home loan to pay a rental deposit counts as used for the rental, so the interest on it can be deductible.

When one loan funds both private and rental spending, the interest must be apportioned and every repayment is spread across both parts for the life of the loan. The ATO's ruling on redraw facilities says you can't choose to pay off the private part first.

Separate splits, each used for one purpose, keep the records simple. If your home might become a rental one day, where you keep spare cash matters too, as our offset and redraw article explains.

Tax rules change from 1 July 2027

Negative gearing and capital gains tax reforms from the 2026–27 Budget are now law and start on 1 July 2027. For established residential properties bought under a contract signed after 7:30pm AEST on 12 May 2026, rental losses will generally only offset residential property income, including capital gains on residential property, with any excess carried forward.

Properties held or contracted before that time can generally still be negatively geared until sold, and eligible new builds keep negative gearing. Separately, for gains accruing from 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is being replaced by cost base indexation and a 30% minimum tax, although eligible new builds can choose either. Check with your accountant before you buy.

Interest-only or principal and interest?

Interest-only repayments are lower for a set period, such as five years, but the balance doesn't fall. Reserve Bank research found that since 2018, around 40% of new investor lending has been interest-only.

Take a hypothetical $600,000 loan at 6.00% over 30 years (an example rate only, not an offer). Interest-only repayments would be about $3,000 a month, against about $3,597 on principal and interest. After five interest-only years they would rise to about $3,866, and total interest would be roughly $44,700 higher if the rate never changed.

Banks are expected to test an interest-only loan on the principal-and-interest repayment that follows, so it may not lift what you can borrow. Whether it suits you is also a question for your accountant.

Cross-collateralised or standalone security?

With cross-collateralisation, one lender holds your home and the rental together as security for all the loans. It can look simpler at the start.

The trade-off often shows later. Selling one property, refinancing one loan or moving lenders can mean revaluing and restructuring everything, and the lender may want to keep some sale proceeds.

With standalone security, the equity split is secured by your home and the investment loan by the rental alone. Each loan can then be changed or paid out on its own, which usually gives you more flexibility.

Planning for vacancies and rate rises

A rental can sit empty between tenants or need urgent repairs while repayments continue. Moneysmart suggests asking whether you could still afford the repayments if rates rose by 2% or 4%.

The Reserve Bank raised the cash rate target to 4.60% on 29 September 2026, a reminder that variable repayments can change. A buffer covering several months of repayments and holding costs can help you ride out a vacancy or a large repair.

The costs beyond the deposit

Stamp duty (transfer duty) is set by each state and territory, and home buyer concessions usually don't apply to investors. In Queensland, for example, duty on a $700,000 investment property at general rates is $24,525.

Land tax is charged yearly on land you own above a threshold, with your own home generally exempt. In Queensland, an individual is liable once the total taxable value of their land at 30 June is $600,000 or more, and other states differ.

Ongoing costs include rates, insurance, strata levies, repairs and property management. The ATO usually spreads borrowing expenses such as loan fees and lenders mortgage insurance over five years, while stamp duty on the purchase is not a rental deduction.

A practical checklist before you apply

  • Get a realistic rental appraisal, and assume a lender may count 80% or less of it.

  • Find out what your home may be worth and how much equity could be available.

  • Keep the deposit split and the investment loan separate from your home loan.

  • Ask whether the security will be standalone or cross-collateralised.

  • Compare interest-only and principal-and-interest repayments, including when an interest-only period ends.

  • Price stamp duty, legal and inspection costs, and land tax for your state.

  • Keep a cash buffer for vacancies, repairs and rate rises.

  • Talk to your accountant about ownership, structure and the 2027 tax changes before you sign.

Common questions

Can I use my equity without changing lenders?

Often, yes. Many lenders can add a new split secured by your home, subject to a valuation and a fresh assessment. Sometimes another lender's policy suits better, and switching can involve fees.

Is the interest on an investment loan always tax deductible?

Not automatically. It generally depends on what the money was used for and whether the property is rented out or held to earn rent. Your accountant can confirm how the rules apply to you.

Try the numbers

Use our Borrowing Capacity calculator for an indicative figure, and the Property Fees calculator to estimate stamp duty and purchase costs. Not sure where to start? Find Your Next Step asks a few short questions and points you to the right tool or enquiry, and our investment loans page explains how Christian structures investment lending.

Talk it through

Christian can compare how lenders treat rental income, equity and loan splits for you.

Sources

General information only. This article does not take into account your objectives, financial situation or needs. Your full financial situation and requirements must be considered before any offer or acceptance of a loan product. It is not tax or legal advice; speak with your accountant or adviser. All lending is subject to the lender's assessment and criteria, and fees and charges apply. Figures and rules are correct as at the checked date shown and can change.

Avantgarde Financial Brokerage Pty Ltd, Corporate Credit Representative 580346, authorised under Australian Credit Licence 389328 held by Connective Credit Services Pty Ltd.

PLANNING YOUR NEXT INVESTMENT?

See how much equity you could put to work in the usable equity calculator, then talk to Christian about structuring the loan. No credit check to enquire. Christian replies the same business day.

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