When to Compare Investment Loans and What Actually Matters

Comparing investment loans usually happens at the wrong time.

Most property investors start shopping rates after they've found the property, which means you're comparing features without understanding what you're trying to achieve. The structure you choose affects your cash flow, tax position, and ability to grow a portfolio over the next decade. That decision needs to happen before you start submitting applications.

When Structure Matters More Than Rate

The structure of your investment loan determines how much you can deduct, how much equity you can access later, and whether you can add more properties without refinancing everything.

Consider an investor buying a rental property in Mount Eliza while still holding an owner-occupied loan. If they refinance the owner-occupied debt at the same time and blend the two loans into one facility, the interest on the entire amount is no longer fully deductible. The ATO looks at the purpose of each dollar borrowed, not the security. Splitting the loans keeps the deduction intact and preserves your ability to use equity from the investment property later without contaminating the owner-occupied debt.

This distinction shapes every comparison you make. An investment loan with offset accounts might look flexible, but if you're planning to use surplus cash to pay down your non-deductible home loan instead, that offset delivers no value. You're better off with a product offering a lower rate without the offset feature.

Interest Only Versus Principal and Interest Repayments

Interest only investment loans reduce your monthly repayment and maximise the deduction by keeping the loan balance at its highest.

For the first five to ten years, depending on the lender, you pay only the interest component. That lowers your repayment compared to principal and interest, which can turn a negatively geared property into a neutral or positively geared one depending on the rental income. Once the interest only period ends, the loan reverts to principal and interest and the repayment increases.

In practice, most investors choose interest only to preserve cash flow and redirect surplus funds toward their non-deductible home loan or the deposit for the next property. The trade-off is that your loan balance doesn't decrease, so you're not building equity through repayments. You're relying on capital growth and deliberate debt reduction elsewhere. Whether that suits your circumstances depends on your income, your tax position, and how quickly you want to expand your portfolio.

Fixed Versus Variable Investor Interest Rates

Variable rate investment loans let you make extra repayments, redraw funds, and refinance without break costs.

Fixed rate loans lock your repayment for one to five years, which can help with budgeting if you're holding multiple properties or your rental income is inconsistent. The limitation is that most fixed rate products restrict extra repayments to around $10,000 to $30,000 per year and charge break costs if you refinance or sell before the fixed term ends. If your strategy involves releasing equity or selling within three years, a fixed rate can create an expensive obstacle.

Some lenders offer a split, where part of your loan is fixed and part is variable. That gives you rate certainty on a portion of the debt while keeping flexibility on the rest. The split that works depends on your cash flow, your view on rate movements, and whether you're planning to buy again soon. There's no universal answer, but the decision should align with what you're doing over the next five years, not just what the rate is today.

Loan to Value Ratio and Lenders Mortgage Insurance

Your loan to value ratio determines whether you pay Lenders Mortgage Insurance and how much equity you have available for future purchases.

Lenders Mortgage Insurance is charged when your loan exceeds 80 per cent of the property's value. For an investment property, LMI premiums are typically higher than for owner-occupied purchases at the same LVR. Borrowing at 90 per cent LVR can add $10,000 to $30,000 or more to your upfront costs depending on the loan amount, and that premium is capitalised into the loan rather than paid separately in most cases.

The LVR also affects your interest rate. Many lenders increase the rate by 0.10 to 0.25 percentage points once you exceed 80 per cent LVR, and some apply further increases above 90 per cent. If you're choosing between paying LMI to keep your deposit in offset or contributing a larger deposit to stay under 80 per cent, the calculation needs to account for the rate difference, the LMI cost, and the deductibility of the interest. In some scenarios, paying LMI and keeping cash available accelerates portfolio growth because you can move on the next purchase sooner.

Portfolio Lending and Cross-Collateralisation

Some lenders offer portfolio loans where multiple properties secure a single facility, while others insist each property sits on a standalone loan.

Cross-collateralisation means the lender holds security over more than one property for a single loan or group of loans. That can make approval easier when you're starting out, because the lender has more security to fall back on. The problem emerges later when you want to sell one property or refinance part of the portfolio. You'll need the lender's consent to release the security, and if your circumstances have changed or the lender's policy has tightened, that consent isn't automatic.

Keeping each property on a separate loan with its own security gives you control. You can sell, refinance, or release equity from one property without touching the others. Not every lender will structure loans that way, especially if your deposit or servicing is tight, so this becomes a key filter when comparing investment loan options. If portfolio growth is your priority, you want a lender that supports standalone securities from the outset.

Rate Discounts and Package Loans

Most lenders advertise a standard variable rate for investment loans, then offer discounts based on your loan amount, LVR, and whether you bundle other products.

A package loan typically includes a transaction account, credit card, and sometimes offset accounts in exchange for an annual fee of around $300 to $400. The package unlocks a larger rate discount, often 0.50 to 0.90 percentage points below the standard rate. Whether the package delivers value depends on whether you'll use those features and whether the rate discount exceeds the annual fee over the life of the loan.

Some lenders offer bigger discounts for loan amounts above $500,000 or $1 million. Others tier their rates by LVR, with the lowest rates reserved for loans under 70 per cent. The advertised rate is rarely the rate you'll receive, so comparing investor interest rates means comparing the actual rate offered to you based on your loan amount, deposit, and the lender's current appetite for investment lending.

Calculating Investment Loan Repayments and Serviceability

Lenders assess your ability to service an investment loan using a buffer of three percentage points above the actual rate, and they apply a discount to your rental income to account for vacancies and management costs.

The rental income is typically shaded by 20 per cent, meaning the lender will only count 80 per cent of the rent when calculating your borrowing capacity. If the property generates $2,500 per month in rent, the lender assumes $2,000. On top of that, they add the loan repayment calculated at the actual rate plus three percentage points, then assess whether your income can service that repayment along with your existing debts.

The serviceability buffer is set by APRA and applies across all lenders. What varies is how each lender treats your rental income, whether they allow deductions for property expenses like body corporate fees and council rates, and how they assess your other commitments. Some lenders are more aggressive in their shading, others more lenient. That difference can determine whether you're approved for the investment loan amount you need, especially if you're holding multiple properties or your taxable income is reduced by existing negative gearing.

Debt to Income Limits for Property Investors

From February this year, APRA imposed a cap on the proportion of investor loans that can be written above six times your gross income.

Each lender can approve up to 20 per cent of their new investor loans at a debt to income ratio of six or more. Once they hit that cap, they either stop lending above six times income or pull back on high DTI applications. If your total borrowing including the new investment loan exceeds six times your gross annual income, you may find fewer lenders willing to approve your application, even if you can service the repayments.

The cap doesn't prohibit lending above six times income, but it does create a bottleneck. Lenders prioritise their high DTI capacity for their most profitable or lowest-risk customers. If you're borrowing at 90 per cent LVR with a DTI of seven, you're using two portions of a lender's constrained capacity, and you'll face more declines or higher rates. Comparing investment loan products now means understanding which lenders still have appetite within their DTI cap and which have already exhausted it.

Tax Changes and Eligible New Residential Dwellings

From July next year, negative gearing for established residential investment properties purchased after May this year will be quarantined, meaning rental losses can only be offset against other residential rental income or carried forward.

Properties held before that date, or purchased under contract before the announcement, can still be negatively geared under the existing rules until sold. Newly constructed dwellings on previously vacant land, or developments that increase the dwelling count, retain full negative gearing for the first investor and a 50 per cent capital gains discount on sale.

That distinction is driving a shift in property investment strategy. Investors who previously targeted established houses or apartments in suburbs like Mount Eliza are now weighing the cash flow impact of quarantined losses against the capital growth potential of those properties. If your taxable income is high and you were relying on rental losses to reduce your tax, an established property purchased now delivers less benefit from next financial year. An eligible new build preserves that benefit but may not be located in your preferred area or price range. The comparison between investment loan products now includes comparing the properties those loans will fund, because the tax treatment affects your cash flow and return over the hold period.

When to Refinance Your Investment Property Loan

Refinancing an investment loan makes sense when your rate is no longer competitive, your equity has increased enough to remove LMI, or your strategy has changed and your current loan structure no longer fits.

If you took out an investment loan three years ago at 80 per cent LVR and the property has grown in value, you might now be sitting at 65 per cent LVR. That opens access to lower rates and better loan features. Refinancing also lets you release equity to fund the deposit on another property without selling, provided you can service the increased debt.

The cost of refinancing includes application fees, valuation fees, and sometimes discharge fees from your current lender. Most lenders will cover some or all of those costs if your loan amount is high enough, but you need to calculate whether the rate saving or feature improvement justifies the disruption. If you're planning to sell within 12 months, refinancing usually isn't worth it. If you're holding for five years or more and the rate difference is 0.50 percentage points or higher, the saving typically outweighs the cost within the first two years.

Call one of our team or book an appointment at a time that works for you. We'll compare the loan features that matter for your situation and make sure the structure supports what you're building, not just the purchase in front of you.

Frequently Asked Questions