Beginner's guide to Investment Property Loans

An investment loan is finance used to purchase a property you plan to rent out rather than live in.

Lenders treat these loans differently because they assess both your income and the property's rental return. If you're looking at Echuca's rental market, understanding how lenders calculate your borrowing capacity and structure these loans will help you avoid delays and set realistic expectations before you start looking at properties.

How Much Deposit Do You Need for a Rental Property?

Most lenders require at least a 20% deposit for an investment property to avoid Lenders Mortgage Insurance (LMI). For a property at Echuca's current median, that means having genuine savings or equity ready before you apply. Some lenders will accept a 10% deposit, but you'll pay LMI and face stricter serviceability requirements. The deposit needs to be genuine savings, equity from an existing property, or a combination of both. Gifted deposits are less commonly accepted for investment purchases than they are for owner-occupied loans.

If you're using equity from your Echuca home to fund the deposit, lenders will revalue your existing property and calculate how much you can access. In our experience, clients often underestimate how much equity they'll need to leave in their current property, particularly if it still has a mortgage attached.

Interest Only or Principal and Interest?

Interest-only repayments mean you pay only the interest charged each month without reducing the loan amount. Principal and interest repayments include both the interest and a portion of the loan balance. Most property investors choose interest-only terms because they reduce monthly costs and maximise tax deductions, though you'll need to start repaying principal once the interest-only period ends, usually after five years.

Consider an investor who purchases a rental property in Echuca and selects a five-year interest-only term. Their monthly repayments are lower, which helps if the property has a vacancy or requires repairs. They claim the full interest amount as a tax deduction and use the cash flow difference to build a buffer or save toward a second property. When the interest-only period ends, they can refinance to another interest-only term or switch to principal and interest depending on their investment loan strategy at that point.

Variable or Fixed Interest Rates for Investment Property?

Variable rates move with the market and typically offer features like offset accounts and unlimited extra repayments. Fixed rates lock in your interest rate for a set period, usually one to five years, which provides certainty but limits flexibility. You can also split your loan between variable and fixed portions if you want some stability without losing all flexibility.

For rental properties, variable rates are more common because they allow you to link an offset account and reduce the interest you're charged without reducing your deductible loan balance. If you fix the rate, you usually can't attach an offset, and any extra repayments may be capped. That said, some investors fix a portion of their loan if they want to lock in repayments during the early years of ownership.

How Lenders Assess Rental Income

Lenders don't count your full rental income when calculating your borrowing capacity. Most will assess 80% of the expected rent to account for vacancies, maintenance, and periods between tenants. If the property is in a regional area like Echuca, some lenders apply a higher discount or require evidence of strong rental demand before they'll include the income at all.

You'll need to provide a rental appraisal from a local property manager as part of your investment loan application. That appraisal needs to be current and specific to the property you're purchasing. Lenders won't accept estimates or ranges. If the rental appraisal comes in lower than expected, it directly reduces how much you can borrow or whether the loan will be approved.

Negative Gearing and the Recent Budget Changes

Negative gearing occurs when your rental property costs more to hold than it earns in rent, and you claim that loss as a tax deduction against your other income. From 1 July 2027, losses from established residential properties purchased after 12 May 2026 will only be deductible against rental income or capital gains from residential property, not against wage income. Losses can still be carried forward, but the immediate tax benefit changes.

If you're buying an established property in Echuca now, those new rules will apply to you. If you're considering a new build, you'll have the option to choose between the old 50% capital gains tax discount or the new indexed method, whichever works better. This doesn't mean investment property is no longer viable, but it does change how you model the numbers and what type of property makes sense.

What Loan Features Should You Look For?

An offset account linked to your investment loan reduces the interest you pay without reducing your loan balance, which keeps your tax deductions intact. Unlimited extra repayments give you flexibility if you want to pay down the loan faster later on. Portability allows you to transfer the loan to a different property if you sell and buy another investment without refinancing. Not all lenders offer all these features on investment products, and some charge higher rates for loans with more flexibility.

You'll also want to confirm whether the lender allows you to capitalise costs like LMI into the loan or whether you need to pay that upfront. Some lenders cap how much you can borrow based on postcode, particularly in regional areas, so it's worth checking serviceability before you make an offer.

Borrowing Capacity for Investment Property

Lenders calculate your borrowing capacity by assessing your income, existing debts, living expenses, and the property's rental return. They also apply a buffer, usually 3%, on top of the current interest rate to ensure you can still afford repayments if rates rise. If you have existing loans, credit cards, or other commitments, those reduce how much you can borrow for the investment property.

In a scenario like this, a buyer with a stable income and a $15,000 credit card limit might find their borrowing capacity reduced by $40,000 to $50,000 even if they never use the card. Closing unused credit facilities before applying can improve your serviceability. We regularly see this make the difference between a loan being approved or declined.

Tax Deductions and Claimable Expenses

You can claim loan interest, property management fees, council rates, insurance, repairs, and depreciation on your investment property. Stamp duty and other upfront costs aren't deductible in the year you buy, but they form part of your cost base for capital gains tax purposes. Body corporate fees, if applicable, are also claimable.

Keep records of everything. Lenders don't assess this, but the ATO does, and missing documentation can cost you deductions at tax time. If you're serious about building wealth through property, speak to an accountant who works with investors before you buy so you structure the loan and ownership correctly from the start.

Refinancing Your Investment Loan

Refinancing an investment property works the same way as refinancing an owner-occupied loan, but lenders will reassess the rental income and revalue the property. If Echuca's property values have increased or if you've paid down the loan, you may be able to access equity for a second purchase. If your loan is on a higher rate and you haven't reviewed it in a few years, refinancing could reduce your repayments and improve cash flow.

Some investors refinance to extend their interest-only period, switch lenders for better features, or consolidate other debts. Others refinance to release equity and use it as a deposit for another property. Timing matters, particularly if your current loan has a fixed rate that's about to expire.

If you're looking to purchase a rental property in Echuca or want to review your current investment loan structure, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions