If you're buying a rental property for income, the loan structure matters as much as the property. It decides your cash flow, your tax position and how far your borrowing can stretch.
This guide is for Narre Warren locals who are close to making an offer and want to know how an investment loan actually works. We'll start with the question most people ask first.
How Much Can You Borrow for a Rental Property?
Your investment loan amount depends on your income, your debts and how a lender assesses the rent. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate.
On a loan at 6.75% p.a., that means a bank-regulated lender checks you could cope at 9.75% p.a. Lenders also usually count only part of the expected rent. APRA's guidance is that prudent lenders count no more than 80% of it, to allow for vacant periods. So a property's rent helps your application, but it doesn't count dollar for dollar.
Credit cards matter too, because lenders commonly assess them on the limit rather than the balance. Reducing or closing unused limits may improve your borrowing capacity, depending on the lender, but closing a card also removes your access to that credit. You can get a starting figure from our borrowing capacity page.
Interest Only or Principal and Interest: Which Suits an Investor?
Interest only keeps repayments lower in the early years, but you don't reduce the loan. Principal and interest costs more each month and pays the debt down.
Consider an investor with a $600,000 loan. All figures here are illustrative and use a rate of 6.75% p.a.
- Interest only: about $3,375 a month.
- Principal and interest over 30 years: about $3,892 a month.
- Five years interest only, then principal and interest over the remaining 25 years: about $4,145 a month.
The investor chooses interest only to keep cash flow comfortable while the rent settles in. The trade-off shows up in year six. After five years of interest only, the loan balance is still $600,000. The repayment then jumps by about $770 a month compared with where it started, because the same debt must now be repaid over a shorter term.
Interest only also doesn't lift your borrowing power. Lenders assess it on the repayments you'd face over the remaining term after the interest-only period ends, so the maximum loan can come out lower. You can test your own numbers with the interest only calculator or the mortgage repayment calculator.
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Book a chat with a Finance & Mortgage Broker at Blank Financial today.
What Deposit Do You Need for an Investment Property?
Most lenders want a deposit of at least 20% of the property value if you want to avoid Lenders Mortgage Insurance (LMI). Each lender sets its own rules, so the deposit you need can vary.
Borrowing above an 80% loan to value ratio (LVR) is often possible, but it usually means paying LMI. The premium is calculated on the loan amount and LVR, and it's paid by you. The cost is a higher upfront outlay or a bigger loan. In return, you can buy sooner.
Your deposit isn't the only cash you need. Victorian stamp duty and legal costs come on top, and you can estimate duty with the stamp duty calculator.
If you already own a home, you may be able to use equity as your deposit. This is called an equity release. The risk is that your home then secures more debt. If the investment underperforms, your own home is exposed. The interest on any funds you borrow is only tax deductible if the funds are used to produce rental income, so it's worth keeping that borrowing separate.
How Do Negative Gearing Rules Work Now?
Negative gearing rules changed on 12 May 2026, and the rule that applies to you depends on what you buy and when. Check the date before you sign a contract.
If you held a residential investment property at 7:30pm AEST on 12 May 2026, losses can still be deducted against other income, such as your salary. Losses on eligible new builds bought after that date can also still be deducted against all income.
For an established property bought after that time, the rule changes from the 2027-28 income year. Net rental losses can then be offset only against other residential property income, including residential capital gains. Excess losses carry forward. Until 30 June 2027, the current rules still apply to those purchases.
In practice, a loss-making established property bought now could stop reducing your tax on your wages from that year. That makes rental income and loan costs more important to your numbers than the tax refund. Only the interest part of your repayment is deductible, not the principal. Speak with your accountant before you buy, as outcomes depend on your own situation.
Variable Rate, Fixed Rate or a Split: What to Weigh Up
A variable rate moves with the lender's rate and usually allows extra repayments and an offset account. A fixed rate locks your repayment for a set period but may limit those features and can carry break costs if you exit early.
A split loan sets part of the debt at each. It gives some certainty and some flexibility. The cost is that neither portion fully captures the benefit of the other if rates move against you. Features differ between lenders, so check what is allowed on each portion.
An offset account reduces the interest charged on the loan. Because less interest is charged, there is also less interest to claim as a deduction. That is a normal outcome, but it's worth keeping in mind when you compare cash flow with and without one.
If you already hold an investment loan, it may also be worth looking at refinancing. A new application will be assessed against today's rules, so you should compare any exit costs before you move.
Preparing Your Investment Loan Application
A lender wants to see steady income, clear debts and a realistic view of the rent. Having your payslips, statements and a rental appraisal ready usually keeps the process moving.
A broker can compare options from lenders across Australia and match the loan to your plan, whether that's a first rental in Narre Warren or the next step in building a portfolio. Your goals decide the structure, not the other way around.
Call one of our team or book an appointment at a time that works for you. We'll work through your numbers, explain the trade-offs, and help you apply with a clear picture of what you're signing up for.
Frequently Asked Questions
How do lenders count rental income on an investment loan?
APRA's guidance is that prudent lenders count no more than 80% of expected rent, to allow for vacant periods. Each lender sets its own policy on the evidence it accepts.
Does an interest only loan increase how much I can borrow?
No. Lenders assess it on repayments over the remaining term after the interest-only period, so the maximum loan can be lower than for principal and interest.
Can I still negatively gear a rental property?
It depends on what you buy and when. Properties held at 7:30pm AEST on 12 May 2026 and eligible new builds keep current treatment, while established properties bought after that are restricted from the 2027-28 income year. Ask your accountant about your situation.
Do I need LMI on an investment loan?
LMI is generally required when the LVR is above 80%. It is paid by the borrower and increases your upfront cost or loan size, but it can let you buy with a smaller deposit.
