Borrowing for an investment unit works differently from a home loan
An investment loan is assessed on both your personal income and the expected rental return, and lenders treat the application with more caution than an owner-occupier purchase. You'll need a larger deposit, the interest rate will usually sit higher, and the serviceability calculation includes a rental income discount to account for vacancy periods and maintenance costs.
Lenders typically apply a rental income haircut of around 20 per cent, meaning if your unit generates $500 per week in rent, the bank will assess serviceability using $400. That buffer reflects real-world costs like periods between tenants, body corporate levies, property management fees and repairs. Your personal income still carries most of the weight in the application, particularly if you're purchasing your first investment property without an existing portfolio.
The deposit you'll need depends on whether you're using equity or savings
Most lenders require a minimum 10 per cent deposit for an investment unit, though some will lend at higher loan-to-value ratios if you're prepared to pay Lenders Mortgage Insurance. If you're using equity from your family home, the calculation looks at the combined LVR across both properties. Consider a young family who owns a home valued at $650,000 with a $400,000 mortgage remaining. They want to purchase an investment unit and use equity as their deposit. The lender will calculate total lending across both securities, and in most cases will cap the combined LVR at 90 per cent, sometimes 95 per cent depending on your income profile and the lender's appetite.
If you're contributing cash savings, you'll also need to show genuine savings history, particularly if the deposit is below 20 per cent. Funds from a recent gift or windfall may not satisfy that requirement without a longer track record in your account. Stamp duty and other upfront costs sit separately and cannot be rolled into the loan amount, so factor those into your cash position before committing to a purchase price.
Fixed or variable rate structures should reflect your income stability and risk appetite
You can structure an investment loan with a variable rate, a fixed rate, or a split between the two. Variable rates give you flexibility to make extra repayments and access features like offset accounts, which can be valuable if you plan to pay down the loan faster or redirect surplus income as your family circumstances change. Fixed rates lock in your repayment amount and provide certainty, which can help with household budgeting if you're managing childcare costs or parental leave periods.
Many investors choose a split structure to balance certainty with flexibility. A 50/50 split lets you fix half the loan to protect against rate rises while keeping half variable to retain redraw or offset functionality. Keep in mind that fixed rate products on investment loans tend to come with restrictions: you may face break costs if you exit early, and extra repayment limits are often capped at a few thousand dollars per year.
Ready to get started?
Book a chat with a Mortgage Broker at Blackfish Finance today.
Interest-only repayments reduce your monthly outgoings but increase your long-term cost
Interest-only terms are common on investment loans and allow you to pay only the interest component for an agreed period, typically one to five years. The principal balance remains unchanged, which lowers your monthly repayment and can improve cash flow if you're balancing mortgage repayments across your home and your investment property.
From a tax perspective, all the interest on an investment loan is deductible against your rental income and other assessable income, provided the property is genuinely available for rent. If you're in a higher tax bracket, the deduction reduces your after-tax cost of holding the property. That deduction applies whether you're on interest-only or principal-and-interest repayments, but interest-only keeps the deductible amount higher for longer because the loan balance doesn't reduce.
From the 2027-28 income year, established investment properties purchased after 12 May 2026 will have their deductible losses quarantined to income from residential properties only, under changes introduced in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Properties held before that date, or eligible new builds acquired after that date, remain fully deductible against all income. If you're considering an established unit, the timing of your purchase and your broader income structure will affect how much benefit you receive from negative gearing. A conversation with your accountant before you sign a contract is worthwhile.
Serviceability is calculated at a higher interest rate than you'll actually pay
Every lender must assess your ability to service a new investment loan at a rate that is at least 3 percentage points above the actual loan product rate. That buffer has been in place since late 2021 and remains the regulatory floor across all authorised deposit-taking institutions. If the investment loan rate is 6.5 per cent, the lender will test whether you can afford the repayments at 9.5 per cent.
Debt-to-income limits also apply from early 2026. Lenders can only write a maximum of 20 per cent of their new investor loans to borrowers with total debt of six times their gross annual income or more. If your household earns $120,000 per year and you're applying for a loan that would take your total debt beyond $720,000, you may find that some lenders decline or require a larger deposit to bring the ratio down. This rule applies separately to investment loans and owner-occupier lending, and it affects couples with mortgages on both their home and one or more investment properties.
Units in smaller blocks may be treated differently from high-density developments
Lenders distinguish between standard residential units and apartments in high-density or mixed-use developments. A unit in a block of four with minimal body corporate obligations and separate title will usually attract the same lending policy as a standalone house. A unit in a tower with more than 50 apartments, a commercial ground floor, or an embedded hotel may face tighter lending conditions, including lower maximum LVRs, higher interest rates, or outright exclusion from certain lender panels.
Servicing rules for units also factor in body corporate levies. If the levy is $2,000 per quarter, that's $8,000 per year deducted from your disposable income in the lender's calculation, before they even assess the rental income and your other commitments. High levies in older buildings or complexes with shared facilities like pools and gyms can reduce your borrowing capacity more than you might expect. Check the strata records during your due diligence and confirm the lender's appetite for that building type before you make an offer.
You can access investment loan options from banks and lenders across Australia
Blackfish Finance works with a panel of lenders that includes the major banks, regional institutions and specialist lenders. Not all lenders offer the same rates or features on investment loans, and some have geographic restrictions or minimum loan amounts that can rule them out depending on your scenario. A broker can identify which lenders are open to your deposit source, employment type, and property location, and then compare the loan structures that align with your broader wealth-building plan.
If you're also considering refinancing your family home to release equity for the investment purchase, the sequencing and structure of those applications can affect the rate you're offered and the speed of settlement. Packaging both loans with the same lender sometimes delivers a rate discount, but splitting them across two lenders may give you access to features or serviceability treatment that wouldn't be available under a single application.
Claimable expenses extend beyond the loan interest
Once the property is tenanted, you can claim deductions for property management fees, landlord insurance, council rates, water charges, repairs and maintenance, and depreciation on the building and fixtures. Stamp duty and other purchase costs are added to the cost base of the property for capital gains tax purposes rather than claimed as an immediate deduction. Legal fees related to the loan or the property purchase may also be deductible in the year they're incurred, depending on their nature.
Keep records of every expense from the date the property is available for rent, even if it takes a few weeks to find a tenant. The ATO allows deductions during genuine vacancy periods where you're actively marketing the property and it remains available. If you leave the property vacant for personal reasons or withdraw it from the rental market, you lose access to deductions for that period.
Call one of our team or book an appointment at a time that works for you, and we'll walk through your household income, your current debt position, and the property type you're considering. We'll also connect you with professionals who can provide tax and legal advice specific to your circumstances, so you move forward with a structure that supports your long-term goals, not just the immediate transaction.
Frequently Asked Questions
What deposit do I need to buy an investment unit?
Most lenders require at least a 10 per cent deposit for an investment unit, though you'll pay Lenders Mortgage Insurance if your loan-to-value ratio is above 80 per cent. If you're using equity from your home, the lender assesses the combined LVR across both properties, typically capping it at 90 per cent depending on your income and the lender.
How does rental income affect my borrowing capacity?
Lenders apply a haircut of around 20 per cent to the expected rental income to account for vacancies, maintenance and other holding costs. If your unit generates $500 per week in rent, the lender will usually assess your serviceability using $400 per week.
Can I claim the interest on an investment loan as a tax deduction?
Yes, interest on an investment loan is deductible against your rental income and other assessable income, provided the property is genuinely available for rent. From the 2027-28 income year, losses on established properties purchased after 12 May 2026 can only be offset against income from residential properties, while properties held before that date or eligible new builds remain fully deductible.
What is the difference between interest-only and principal-and-interest repayments?
Interest-only repayments cover only the interest component for a set period, typically one to five years, which lowers your monthly outgoings and keeps the loan balance unchanged. Principal-and-interest repayments reduce the loan balance over time but result in higher monthly costs.
Do all lenders treat investment units the same way?
No. Lenders distinguish between standard residential units and high-density or mixed-use developments, and some impose tighter conditions on buildings with more than 50 apartments, commercial floors, or embedded hotels. Body corporate levies and building type can also affect your borrowing capacity and the interest rate offered.
