Investment property financing explained
Financing an investment property works on the same foundations as any home loan, but lenders assess it differently and the numbers behave differently once rent and tax enter the picture. This guide covers how investment loans are structured, how lenders read rental income, and the decisions that shape your repayments.
Last updated July 2026How investment loans differ from owner occupier loans
A loan on a property you rent out is treated as higher risk than one on the home you live in, so pricing and policy usually reflect that. In practice you can expect a few differences.
- Interest rates are often a little higher than the equivalent owner occupier rate.
- Deposit expectations can be firmer, with many lenders preferring a larger buffer below an 80 percent loan to value ratio.
- Interest only repayments are more common among investors, though they come with trade offs covered below.
- Rental income is counted toward serviceability, but lenders do not count all of it.
Deposits, equity and loan to value ratio
You can fund an investment purchase with a cash deposit, or by drawing on the equity in a property you already own. Either way, the loan to value ratio matters: above 80 percent you will usually face lenders mortgage insurance, an added cost that protects the lender, not you. Using equity from your home to fund a deposit is common, but it increases the debt secured against your home, so weigh it carefully.
How lenders assess rental income
Rent helps your borrowing capacity, but lenders apply a haircut to allow for vacancies, management fees and maintenance. Many count only a portion of the expected rent, commonly in the region of 70 to 80 percent, rather than the full figure. They then weigh that against the loan repayments and your other commitments, applying a serviceability buffer above the actual rate. You can read how that buffer works in borrowing capacity.
Do not assume the rent will cover the whole repayment. Between the lender discount on rental income and real world costs like vacancies, insurance and rates, many investors contribute from their own pocket, especially in the early years.
Interest only versus principal and interest
Investors often consider interest only repayments, where for a set period you pay only the interest and the balance does not reduce. Understanding the trade off is essential.
| Repayment type | Upside | Downside |
|---|---|---|
| Interest only | Lower repayments during the interest only period, which can aid cash flow and tax planning | The balance does not fall, total interest is usually higher, and repayments jump when the period ends |
| Principal and interest | The balance reduces and total interest is lower over the life of the loan | Higher repayments from the outset |
Tax basics to be aware of
Investment properties carry tax consequences that owner occupied homes do not, and this is general information rather than tax advice. In broad terms, rent is assessable income, many holding costs and the interest on the loan may be deductible, and the difference between income and deductible costs can be positive or negative. Where deductible costs exceed rental income, the arrangement is often described as negatively geared. The rules are set by the Australian Taxation Office and depend on your circumstances, so confirm the detail with a registered tax agent before relying on any of it.
Tax outcomes depend on your personal situation and current law. Speak with a registered tax agent or accountant, and check the ATO for the current rules, before making decisions based on tax.
Frequently asked questions
Do investment loans cost more than owner occupier loans?
Often, yes. Lenders generally price investment lending a little higher and may apply stricter policy, because it is considered higher risk. The gap varies between lenders, which is why comparing matters.
How much deposit do I need for an investment property?
It varies by lender and product. Many prefer you stay at or below an 80 percent loan to value ratio to avoid lenders mortgage insurance, though loans above that exist. Equity in another property can also serve as the deposit.
Is interest only better for investors?
It can help cash flow and has tax considerations, but the balance does not reduce and total interest is usually higher. Whether it suits you depends on your strategy and should be discussed with licensed advisers.
Keep reading
Understand what you can borrow in borrowing capacity, compare loan pricing with the comparison rate, weigh fixing in fixed interest rates, or fund a deposit through refinancing to release equity.
Sources: Australian Securities and Investments Commission (ASIC) MoneySmart, guidance on investment property and interest only loans; Australian Taxation Office (ATO), residential rental property rules.
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Master Mortgage Broker Sydney is an independent education website. It is not a mortgage broker, does not arrange loans and does not provide financial or credit advice. Content here is general in nature and does not consider your personal objectives, situation or needs. Always confirm details with a licensed professional before acting.