Everything You Need to Know About Property Investment Loans

Buying an investment property means borrowing differently to how you financed your home.

The loan structures, deposit requirements, and tax treatment all change when you move from owner-occupier to investor. With significant rule changes introduced in mid-2026 and more taking effect in mid-2027, the fundamentals have shifted in ways that affect both new investors and those growing a portfolio. If you're in Chapel Hill and weighing up whether to hold, buy, or refinance an investment property, the following will walk you through what matters now.

How Investment Loans Differ From Home Loans

Lenders treat investor loans as higher risk, which means higher rates and stricter serviceability tests. An investor loan typically attracts an interest rate 0.30 to 0.50 percentage points above an equivalent owner-occupier loan. Lenders also apply the serviceability buffer to the loan amount using rental income at a discount, usually 80 per cent of the assessed rent to account for vacancy and management costs.

Consider a buyer who already owns a home in Chapel Hill and is looking at a unit in the Chapel Hill Central precinct to rent out. The unit generates $550 per week in rent, but the lender will assess serviceability using $440 per week. That difference affects how much the lender will approve, not just the deposit required. The serviceability calculation also includes a three percentage point buffer above the actual interest rate, a requirement confirmed by APRA in mid-2025 and still in force.

Deposit Requirements and Loan to Value Ratios

Most lenders cap investor loans at 90 per cent LVR, and many will only lend 80 per cent without Lenders Mortgage Insurance. If you borrow above 80 per cent LVR, the LMI premium on an investor loan is higher than on an owner-occupier loan, and it's capitalised into the loan amount.

Using equity from your existing home is common, but it still counts toward your LVR. If your Chapel Hill home is worth more now than when you bought it, you may be able to access that equity without selling. The lender will value both properties and calculate a blended LVR across your portfolio. That equity release can cover your deposit and purchase costs, but the same 80 per cent threshold applies to avoid LMI or minimise it.

Interest Only Versus Principal and Interest

Interest-only periods allow you to reduce monthly repayments and preserve cash flow, which can be useful in the early years of ownership when rental income may not cover all holding costs. Most lenders offer interest-only terms of up to five years on investor loans, after which the loan reverts to principal and interest unless you negotiate an extension.

The appeal of interest-only repayments is that every dollar of interest is a claimable expense, and you're not paying down a loan secured against an appreciating asset. The risk is that you defer principal repayment, which means a higher balance at the end of the interest-only period and higher repayments when the loan converts. If you plan to sell before the conversion or refinance into another interest-only term, this structure works. If you plan to hold long-term, the principal and interest option builds equity and reduces debt as the property appreciates.

Variable or Fixed Rates for Investment Property

Variable rates on investment loans offer flexibility to make extra repayments and access offset accounts, both of which can reduce interest costs over time. Fixed rates lock in your repayment for a set period, usually one to five years, but most fixed rate products don't offer offset accounts and limit extra repayments to a small annual amount.

If rental income is steady and you want predictable repayments, a fixed rate provides certainty. If you expect to make lump sum repayments from other income or want the ability to redraw, a variable rate gives you more options. Some investors split their loan, fixing part for stability and leaving part variable for flexibility. The structure you choose should match your income pattern and whether you plan to pay down the loan or hold it interest-only.

Negative Gearing Rules From July 2027

From 1 July 2027, properties purchased on or after 7:30pm AEST on 12 May 2026 will have their net rental losses quarantined. Those losses can only offset other rental income or be carried forward, not offset against salary or wages. Properties held before that date and time, including those under contract, are grandfathered and retain full negative gearing under the old rules.

The exception is eligible new builds. Dwellings built on vacant land or developments that increase the number of dwellings on a site remain fully negatively gearable for the first purchaser. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. If the new build is occupied for more than 12 months before being sold to an investor, the subsequent purchaser loses access to full negative gearing.

For someone in Chapel Hill considering an off-the-plan townhouse development near Kenmore Road, the distinction matters. If the development adds dwellings to a site that previously held fewer or none, it qualifies. If it's a single dwelling replacing a single dwelling, it doesn't. Confirming eligibility before you buy is part of the due diligence process.

Capital Gains Tax and Indexation From July 2027

The 50 per cent CGT discount for individuals is being replaced with cost base indexation and a minimum 30 per cent tax rate on real gains, effective 1 July 2027. Gains that accrued before that date on properties already held are still calculated under the old rules. Only gains accruing after 1 July 2027 will be subject to the new regime.

Eligible new builds offer an election between the old 50 per cent discount and the new indexation method with the minimum tax rate. Which option is preferable depends on how long you hold the property and inflation over that period. The longer you hold, the more indexation reduces your taxable gain. For shorter hold periods, the 50 per cent discount may still deliver a lower tax outcome.

Borrowing Capacity and Debt-to-Income Caps

From 1 February 2026, lenders have been restricted in how many loans they can write at debt-to-income ratios of six times or greater. Up to 20 per cent of new investor loans can exceed that threshold, but once a lender hits that cap, they tighten serviceability for remaining applicants.

If your total debt, including your home loan and the proposed investment loan, is more than six times your gross household income, you may need a larger deposit or a co-borrower to meet serviceability. Borrowing for new builds is exempt from the DTI cap, which means new construction and newly completed dwellings offer more borrowing headroom than established properties.

In practice, a Chapel Hill household earning $180,000 combined would face closer scrutiny on any loan package exceeding $1.08 million. That doesn't mean the loan will be declined, but it does mean the lender will apply tighter criteria to rental income, living expenses, and other commitments.

Maximising Tax Deductions on Investment Property

Interest, property management fees, council rates, body corporate levies, insurance, repairs, and depreciation on fixtures and fittings are all claimable. Loan establishment fees and LMI premiums can be claimed over five years or the life of the loan if shorter. Stamp duty and conveyancing costs are not immediately deductible but are added to the cost base for CGT purposes.

Keeping records from day one matters. Rental income must be declared in the year received, and expenses are deductible in the year incurred. Prepaying 12 months of interest before 30 June can bring forward a deduction, but only if the prepayment doesn't exceed 12 months and the loan is for producing assessable income. A quantity surveyor's depreciation schedule is a one-off cost that typically pays for itself in the first year through additional deductions on plant and equipment and capital works.

Choosing the Right Loan Structure for Your Strategy

Your loan structure should reflect whether you're building a portfolio, holding for long-term capital growth, or planning to sell within a few years. If you're holding long-term and relying on capital growth, an interest-only variable loan with an offset account gives you the flexibility to park surplus income and reduce interest without affecting your tax deductions.

If you're acquiring multiple properties over time, quarantining debt to each property with separate loan splits helps when you sell one and want to maintain deductibility on the others. Redrawing funds from an investment loan for private purposes makes that redrawn portion non-deductible, so structuring loans correctly at the outset prevents problems later.

A refinance can realign your structure if your original loan no longer fits your strategy. Refinancing also allows you to release equity for another deposit without selling, provided your serviceability supports the increased borrowing.

If you're ready to move forward or want to understand how the recent changes affect a property you're considering, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions