The easiest way to fund an established investment property

You need an investment loan that gives you borrowing power without forcing you into a structure that costs more than it returns.

Established properties in Ocean Grove make up most of the local rental stock. If you're buying an investment property that already exists, rather than building or buying new, you're working with a different set of tax rules from mid-2027, a deposit requirement that reflects the lender's risk, and a repayment structure that directly affects your monthly cash position. The loan you choose determines whether the property supports your longer-term goals or becomes a drain you carry for years.

The deposit and LMI cost for an established rental

Most lenders set a maximum loan to value ratio of 80 per cent for established investment properties. You need at least a 20 per cent deposit, plus settlement costs including stamp duty and legal fees. If you borrow above 80 per cent LVR, Lenders Mortgage Insurance applies. LMI on an investment loan is priced higher than LMI on an owner-occupied loan at the same LVR, because default rates are higher across the investor pool.

Consider a buyer who owns a home in Ocean Grove and wants to purchase a two-bedroom unit near the Kingston estate to rent out. The unit is priced around the current median for established units in the suburb. If the buyer has 15 per cent in cash and proposes to borrow 85 per cent, the lender will add an LMI premium of several thousand dollars to the loan amount. That premium is capitalised into the debt and cannot be claimed as a deductible expense under current ATO interpretation. Reducing the loan to 80 per cent removes the LMI cost entirely and increases serviceability in the lender's assessment.

How negative gearing changes from July 2027

Under legislation that passed in June, rental losses on established residential properties purchased after 7:30pm on 12 May 2026 can no longer be offset against salary or other non-rental income from 1 July 2027. Those losses are quarantined and can only offset future rental income or capital gains on residential property. Properties bought before that date and time, or under contract before then, retain access to negative gearing under the old rules until sold.

If you settle on an established property in Ocean Grove between now and 30 June 2027, you can claim the full deduction for this financial year only. From 1 July 2027, any shortfall between rental income and deductible expenses will be carried forward rather than reducing your taxable income in that year. The change does not affect interest deductibility itself, it affects where the net loss can be applied. For properties that produce positive cash flow after all expenses, or properties held long enough that rents rise to cover costs, the quarantine has no practical impact.

Interest-only or principal and interest for an established rental

An interest-only period keeps the monthly repayment lower and maximises the deduction, because principal repayments are not deductible. Lenders typically offer interest-only terms of up to five years on investment loans, after which the loan reverts to principal and interest unless you request and qualify for an extension.

Interest-only works when the property is negatively geared under the current rules, or when you plan to use the cash flow saved each month to pay down non-deductible debt such as your home loan. Once the new quarantine applies from mid-2027, the monthly cash saving from interest-only still exists but the tax treatment of the loss is deferred rather than claimed immediately. In that scenario, interest-only remains useful if your strategy is to build a portfolio or redirect cash elsewhere, but the upfront tax benefit is smaller.

Principal and interest repayments reduce the loan balance and build equity in the property. The monthly cost is higher, and the deductible portion of each payment falls as principal rises, but the debt reduces automatically and the portfolio risk falls over time. If you're buying one property and intend to hold it without further purchases, principal and interest provides a clearer path to owning the asset outright.

Variable or fixed rate for the loan term

Variable rates on investment loans sit above owner-occupied variable rates, typically by 0.30 to 0.60 percentage points depending on the lender and the LVR. A variable rate allows unlimited extra repayments, full redraw or offset depending on the product, and no break cost if you refinance or sell. Fixed rates for investment loans are priced higher again than variable rates in the current market, and most fixed products do not offer offset accounts or allow extra repayments beyond a small annual cap.

If you expect rate movements over the next two years to stay within a narrow band, a variable rate keeps your options open. If you want certainty for budgeting or you expect rates to rise, a fixed term of two or three years locks in the cost but removes flexibility. Splitting the loan between fixed and variable is common: you get partial certainty on repayments and partial access to offset and extra repayments. The split does not need to be even, and you can weight it toward the feature that matters most to your circumstances.

Rental income and serviceability with the DTI cap

Lenders assess your ability to service an investment loan by adding the proposed repayment, calculated at the product rate plus a three percentage point buffer, to your existing commitments and comparing the total to your income. Rental income from the property is included, but lenders apply a shading of 20 to 30 per cent to allow for vacancy, maintenance and management costs.

From February, APRA introduced a debt-to-income cap that limits how much lenders can approve above six times your gross income. The cap applies separately to investment and owner-occupied lending. Up to 20 per cent of a lender's new investment loan approvals each quarter can exceed a DTI of six. If you're at or above that threshold, you may be declined by one lender and approved by another depending on where each sits against its quarterly limit at the time you apply.

In a scenario like this: a couple in Ocean Grove earning a combined income of $160,000 want to borrow for an investment property while retaining their existing home loan of $450,000. The proposed investment loan is $520,000. Total debt is $970,000, which is just over six times income. The lender may approve the loan under the 20 per cent discretionary portion of its portfolio, or may ask the buyers to reduce the loan amount or increase the deposit to bring the DTI below six. The outcome depends on the lender's current position and the strength of the rest of the application.

Loan features that suit an established investment property

An offset account linked to the investment loan allows you to park surplus cash and reduce the interest charged each month without making a formal repayment. The balance in the offset does not reduce the principal, so the full loan amount remains deductible. This is particularly useful if you receive irregular income, hold cash for future renovation or expect a tax refund that will sit in your account before being deployed elsewhere.

Most offset accounts on investment loans are available only on variable rate products. If you fix part or all of the loan, the fixed portion will not have offset access unless you choose one of the few lenders that offer it, and those products typically carry a higher fixed rate to compensate.

Redraw allows you to access extra repayments you've made above the minimum, but the ATO's view is that redrawing funds for private use can reduce or eliminate the deductibility of interest on the redrawn amount. Offset avoids that issue because the cash never forms part of the loan. If you plan to keep surplus funds connected to the loan, offset is the safer structure.

Refinancing an investment loan after settlement

Refinancing makes sense when another lender offers a lower rate, when your circumstances have improved and you can negotiate a larger loan against the property's equity, or when the current loan no longer suits the way you're managing the investment. The property's value may have increased since you bought it, giving you access to equity for a deposit on another purchase or to pay down other debt.

If you refinance after 1 July 2027 and your established property was purchased after 12 May 2026, the new lender will assess the loan under the same quarantine rules. The tax treatment does not change when you refinance, it is tied to the date you purchased the property. If you're considering a switch to release equity or improve the rate, compare the benefit against the cost of discharge, application and valuation fees. Some lenders offer refinancing with no upfront valuation fee or reduced application fees to win the business.

Structuring the loan when you own other property

If you already own a home in Ocean Grove and you're using equity from that property to fund part or all of the deposit, keep the investment loan separate. Do not blend the two debts on a single security. Separate loans maintain a clear line between deductible and non-deductible debt, which the ATO requires if you're claiming interest as an expense.

In our experience, buyers who cross-collateralise their home and investment property to avoid LMI or lift borrowing power often regret it when they try to sell one property or refinance later. Each property carries the other's debt, and the lender must approve any change to either loan. A clean split costs slightly more at the start, either through a higher deposit requirement or a small LMI premium, but it protects your flexibility and keeps the tax treatment clear.

Call one of our team or book an appointment at a time that works for you. We'll review your deposit, income and existing debt, show you which lenders can approve the loan amount you need, and structure the finance so the interest remains deductible and the monthly cost fits your cash flow.

Frequently Asked Questions