Simple hacks to fund a rental property purchase

What makes an investment loan different from a standard home loan

An investment loan is assessed differently because the lender considers both your personal income and the rental income the property will generate. Lenders typically apply a shading rate to rental income, often accepting only 70 to 80 per cent of the projected rent when calculating serviceability.

Consider a buyer who already owns their home and wants to purchase a two-bedroom unit to rent out. The property generates $450 per week in rent, or roughly $23,400 per year. Most lenders will assess serviceability using around $16,380 to $18,720 of that income, not the full amount. The shading accounts for vacancy periods, maintenance costs, and rental income uncertainty. This is separate from the tax deductions you can claim once the property settles.

Lenders also apply higher risk weightings to investor loans under APRA's Prudential Standard APS 112, which means the interest rate you're offered is usually higher than the equivalent owner-occupier rate. Rate differences can range from 0.20 to 0.60 percentage points depending on the lender and loan structure.

How much deposit do you need to borrow for a rental property

Most lenders require a minimum 10 per cent deposit for investment property loans, though a 20 per cent deposit allows you to avoid Lenders Mortgage Insurance. If you borrow above 80 per cent LVR, the LMI premium is calculated on a sliding scale based on loan amount and LVR, and the cost is borne by you as the borrower.

You can also use equity in your existing home instead of cash savings. If your current property is worth $800,000 and you owe $400,000, you have $400,000 in equity. Lenders will typically allow you to access up to 80 per cent of that equity without needing LMI, which in this scenario means you could release around $240,000. That amount can cover the deposit, stamp duty, and other upfront costs without requiring cash out of pocket.

Offset account balances do not reduce the loan amount for LVR calculation purposes under APS 112. If you put $50,000 into an offset account against a $500,000 loan, the lender still treats the exposure as $500,000 when determining your LVR and capital requirements.

Interest-only repayments and when they make sense for investors

Interest-only repayments are a common structure for investment loans because they maximise your tax-deductible interest expense and preserve cash flow. During the interest-only period, your repayments are lower because you're not paying down the principal, which can help with serviceability if you're holding multiple properties or managing irregular rental income.

In our experience, interest-only works well when you're holding the property for capital growth and intend to pay down non-deductible debt on your home loan instead. As an example, a property investor with a $600,000 investment loan at a rate of 6.50 per cent would pay around $3,250 per month on interest-only, compared to roughly $4,100 on principal and interest over a 30-year term. The difference of $850 per month can be redirected to an owner-occupier loan, where the interest is not tax-deductible.

A loan is classified as non-standard under APS 112 where the LVR is greater than 80 per cent and the contractual interest-only period is greater than five years or is not specified. This classification affects the lender's capital requirements and may limit your access to certain products at higher LVRs.

How new negative gearing rules affect rental property loans from mid-2027

Properties held at 7:30pm AEST on 12 May 2026, including those under contract awaiting settlement, continue to allow losses to be fully deductible against other income, including salary and wages, until the property is sold. From the 2027-28 income year, losses on established residential investment properties acquired after that date are deductible only against other income from residential properties, including capital gains on residential properties.

Eligible new builds, including dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases, remain exempt from the new restrictions and can continue to be negatively geared against all income.

This matters when structuring an investment loan application now. If you're considering an established property purchase, waiting until after 1 July 2027 means you'll need other rental income or future capital gains to absorb any ongoing losses. Buyers purchasing before that date, or purchasing a new build, retain the ability to offset losses against their wage income indefinitely.

Variable or fixed rate for a rental property loan

Variable rates give you the ability to make extra repayments without penalty, access offset accounts, and switch loan features as your circumstances change. Fixed rates lock in your repayment amount and provide certainty, but most fixed-rate products restrict additional repayments to a capped amount each year and don't include offset accounts.

For investors, the offset account is often more valuable than rate certainty because rental income can sit in the offset and reduce the interest charged on the loan without affecting your deductible interest expense. If you fix the rate, you lose that flexibility.

Some investors use a split loan structure, fixing part of the loan for certainty and leaving part variable for flexibility. If you're holding the property long-term and want to preserve the option to pay down debt or refinance without break costs, keeping at least part of the loan variable is usually the more practical approach. You can read more about split loan structures for construction if you're planning to build or renovate.

What loan features actually matter when buying rental property

Not all loan features add value for property investors. Redraw facilities, for instance, let you access extra repayments you've made, but if you're on interest-only, you're not making extra repayments anyway. An offset account, on the other hand, works whether you're on interest-only or principal and interest, and it preserves the full deductibility of your interest expense.

Portability matters if you plan to sell the rental property and purchase another without breaking your loan contract. Some lenders allow you to transfer the existing loan to a new security, which avoids discharge and application fees.

If you're planning to build a second dwelling on the same title as an existing property, such as a granny flat, you'll need a lender that accepts rental income from secondary dwellings and allows construction drawdowns on investment loans. We regularly see investors trying to top up an investment loan to build a granny flat only to find their current lender won't accept dual rental income or requires a full refinance to a construction product.

How lenders assess rental income and vacancy risk

Lenders typically apply a shading rate to rental income, often accepting only 70 to 80 per cent of the projected rent when calculating serviceability. The shading percentage varies by lender and property type. A unit in a high-density building may be shaded more heavily than a detached house in a tightly held suburb due to perceived vacancy risk and tenant turnover.

If the property is tenanted at the time of application, lenders will ask for a copy of the lease and evidence of rental payments. If it's vacant, they'll rely on a rental appraisal from a licensed property manager or real estate agent. The appraisal needs to be current, typically no older than 90 days, and should reflect realistic market rent, not aspirational figures.

APRA requires all lenders to assess new borrowers' capacity to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. If you're applying for a loan at 6.40 per cent, the lender will test your ability to repay at 9.40 per cent. This buffer was increased from 2.5 percentage points in October 2021 and remains in place.

Debt-to-income limits and how they affect investor borrowing from February 2026

APRA activated a debt-to-income lending limit on 27 November 2025, effective from 1 February 2026, applying to all authorised deposit-taking institutions. Each lender may lend up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater.

If your total household income is $150,000 and you already owe $600,000 across all home and investment loans, your DTI is four. You're well within the threshold. If you're applying for an additional $300,000 investment loan, your total debt would be $900,000, giving you a DTI of six. That application would fall into the restricted 20 per cent allocation, which means it's not automatically declined, but the lender has less capacity to approve it and will scrutinise serviceability more closely.

The limits apply separately to the owner-occupier and investor lending portfolios of each institution and apply to new lending only. Existing borrowers are not affected. Non-bank lenders are not currently subject to this limit, which can make them a viable option for investors with higher debt levels relative to income.

Using equity to fund your deposit and avoid upfront cash

Equity release is one of the most common ways to fund an investment property deposit without needing savings. If you own your home outright or have significant equity, you can borrow against that equity to cover the deposit, stamp duty, and other costs on the investment property.

Lenders will typically allow you to borrow up to 80 per cent of your home's value across all loans secured against it. If your home is worth $900,000 and you owe $300,000, you can access up to $720,000 in total lending, which gives you $420,000 in available equity. From that, you'd need to leave enough to cover costs and maintain a buffer, but you could comfortably fund a deposit on a property in the $400,000 to $600,000 range without using cash savings.

You can read more about using equity to build a granny flat or fund other property investments. The same principles apply whether you're buying a standalone rental property or adding a second dwelling to your existing block.

What happens if rental income drops or the property sits vacant

If your property is vacant for an extended period, you're still liable for the full loan repayment. Lenders assess your serviceability assuming you can cover the repayments from your own income if rental income stops, so vacancy shouldn't put you into hardship if the loan was structured correctly from the start.

Under section 72 of the National Credit Code, a borrower under a regulated credit contract may give the credit provider notice of their inability to meet obligations under the credit contract. Following receipt of a hardship notice, the credit provider has 21 days to request further information, and must respond within 21 days of receiving that information. This applies to investment loans held by individuals, though loans to companies or for business purposes generally fall outside the National Credit Code.

If you're holding multiple investment properties and rental income drops across the portfolio, it's worth speaking to your lender early rather than waiting until repayments are missed. We regularly see investors who assume they need to sell, when a short-term switch to principal and interest or a temporary repayment adjustment would have kept them solvent.

Call one of our team or book an appointment at a time that works for you. We can review your current position, compare investment loan options from lenders across Australia, and structure the loan to suit your income, deposit, and property strategy.

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