An investment property loan is a home loan for a property you will rent out rather than live in. Lenders price them higher and assess them harder than owner-occupier loans, because a tenant paying your mortgage is a less certain thing than you paying it.
The cash rate is 4.35% as at 12 August 2026, values are falling and rents are rising. That combination changes the sums on both sides of an investment purchase, so it is worth understanding what you are actually signing up for.
What is an investment property loan?
Mechanically it works like any mortgage. The differences are in the pricing and the assessment: a higher interest rate than the equivalent owner-occupier loan, usually a larger deposit expected, and rental income counted only in part — most lenders take around 80% of it, on the assumption of vacancies and costs.
The main loan types
Principal and interest
You pay down the debt from day one. Higher repayments, lower total interest, and you build equity. This is the default for investors who plan to hold long term.
Interest only
You pay only the interest for a set period, usually one to five years. Repayments are lower and, because interest on an investment loan is generally deductible, the tax position suits some investors. The catch arrives at the end of the period: repayments jump, sometimes sharply, because the same principal now has fewer years to run. Know what that number will be before you start.
Using equity
If you already own property, you can borrow against the equity in it for the deposit on the next one. It works, and it also means both properties are exposed if values fall. In 2026 that is not a theoretical risk.
Fixed, variable or split
Fixed
Certainty for a set term. You know the repayment. You usually lose the offset account and pay a break cost if you exit early.
Variable
Moves with the market. Comes with offset and redraw, and you can refinance without penalty. You wear the rate rises.
Split
Part fixed, part variable. You cap some of the risk and keep some of the flexibility. Our guide to a split loan covers how to weight the two halves.
Choosing between them
Two things decide it: the rate and the features. Compare the comparison rate rather than the headline rate, because it includes the fees. Then check whether the loan has an offset account, allows extra repayments, and lets you redraw — on an investment loan an offset is usually worth more than a small rate discount, because it does not affect the deductibility of the interest.
“The lowest interest rate doesn’t always make it the best investment loan. Features such as offset accounts, redraw facilities and repayment flexibility can have a significant impact on your cash flow and investment strategy over the life of the loan.”
Mary Nebotakis
Mortgage & Property Finance Specialist | Natloans
What it costs
Before you own it
- Deposit. Usually 20% to avoid Lenders Mortgage Insurance. Less is possible, but LMI on an investment loan is expensive and gets added to the debt.
- Stamp duty. The largest single upfront cost in most states, and investors rarely get the concessions first-home buyers do. Our guide to how stamp duty is calculated has the workings.
- Legal and conveyancing. See conveyancing fees for current ranges.
- Building and pest inspection. Skipping this on an investment property is a false economy.
- Lender fees. Application, valuation and settlement charges.
Once you own it
- Loan repayments, which are the bulk of it
- Council rates, water and strata levies
- Landlord insurance, which is not the same as building insurance
- Property management, typically a percentage of the rent
- Maintenance and repairs, which are not optional in a rented property
- Land tax, once your holdings pass the state threshold — the cost most first-time investors forget
How to qualify
Lenders assess you on whether you could carry the loan if rates were around three percentage points higher than they are now. At 4.35% that buffer does real work, and it is why borrowing capacity has fallen faster than prices.
What they look at:
- Deposit and loan-to-value ratio. The more you put in, the better the rate and the fewer the conditions.
- Income, plus about 80% of the expected rent.
- Existing debts. Credit cards count at their limit, not their balance.
- Credit history. Defaults do not automatically stop you — see borrowing with bad credit — but they narrow which lenders will look at you.
- Genuine savings. Many lenders want to see the deposit accumulated over time rather than appearing last month.
How to apply
- Work out your budget and get pre-approval. It tells you your real number and makes you credible with agents.
- Find the property. Our guides to types of property investment and property valuation cover what to weigh.
- Submit the full application with the contract of sale.
- The lender values the property and issues formal approval.
- Settlement, then find a tenant.
Tax
Two things matter most, and neither replaces advice from your accountant.
Interest is generally deductible on the portion of the loan used to buy or improve an income-producing property. This is why investors are careful never to mix personal spending into an investment loan — it muddies the deduction.
Negative gearing applies when the property costs more to hold than it earns, and the shortfall can generally be offset against your other income. It only helps if you can fund that shortfall out of cash flow, and with values falling you may be carrying a loss on the asset at the same time.
Managing the loan once you have it
- Review it annually. Loyalty is not rewarded by lenders. If your rate has drifted above what is available, refinancing is usually the largest single saving available to you.
- Keep a buffer. Vacancies happen, repairs happen, and rate rises happen. Three to six months of repayments in an offset is the usual guidance.
- Make extra repayments where it suits your strategy. On a variable loan they cut the interest and stay accessible through redraw.
- Ask about portability if you might sell and rebuy. It can let you move the loan to a new property without discharging and reapplying.
- Watch the rate cycle. Our Rate Prediction Index tracks what the futures market and named economists expect from each Reserve Bank meeting.
Andrew Hadjidemetri
Financial Services Expert
“A successful investment property strategy doesn’t end once the loan settles. Regularly reviewing your interest rate, loan structure and equity position can help ensure your finance continues to support your long-term investment goals as your portfolio grows.”
Andrew Hadjidemetri
Director | Australian Financial & Mortgage Solutions
FAQs
How much deposit do I need for an investment property?
Twenty per cent avoids Lenders Mortgage Insurance and gets you a better rate. Some lenders go to 10%, but LMI on an investment loan is expensive and is added to the debt.
Are investment loan rates higher than owner-occupier rates?
Yes, usually by a noticeable margin, and interest-only sits higher again. Lenders price the extra risk of a loan repaid from someone else’s rent.
Can I use equity in my home as the deposit?
Yes, and it is how most second properties get bought. It also puts both properties at risk if values fall, which is worth weighing carefully in a falling market.
Is interest on an investment loan tax deductible?
Generally yes, on the portion used to buy or improve an income-producing property. Keep the loan clean of personal spending so the deduction is not muddied, and check the detail with your accountant.
Should I choose interest-only or principal and interest?
Interest-only lowers repayments now and raises them later. Principal and interest costs more each month and less overall. Which suits you depends on your cash flow and how long you intend to hold.
What happens if the property is vacant?
You cover the full repayment yourself. That is the case for a buffer, and it is why lenders only count about 80% of the expected rent when they assess you.
Mansour Soltani
Financial Services Expert
With over two decades of experience in Australia’s real estate sector, Mansour has built a career specialising in the acquisition and sale of investment and commercial properties, spanning major metropolitan hubs and regional areas. As the founder and owner of a finance brokerage firm, he manages a loan portfolio exceeding $250 million while serving a broad range of clients nationwide.
A frequent contributor to money.com.au, Mansour has developed a deep understanding of diverse investment strategies, enabling him to provide valuable, well-informed perspectives on market trends and opportunities.