Comparing investment loans isn't the same as comparing home loans.
Most first-time property investors treat the process like they're shopping for an owner-occupied mortgage, focusing mainly on the advertised rate. But the features that matter when you're living in a property are very different from the ones that matter when you're building wealth through rental income. The loan that looks cheapest upfront can end up being the most expensive if it doesn't align with how you'll use it.
Interest Only Repayments Can Improve Cash Flow in the Short Term
An interest only loan lets you pay just the interest portion of your loan for a set period, usually one to five years, without reducing the principal.
Consider a buyer who purchases a rental property while still renting closer to the city. They're managing rent on their own place, loan repayments on the investment, and building a deposit for an owner-occupied purchase down the line. Choosing interest only repayments for the first five years reduces their monthly outgoings by several hundred dollars compared to principal and interest. That cash flow difference can be the margin between holding the property comfortably or selling it before it has time to grow in value. Once they move into their own home, they can switch the loan to principal and interest and start paying it down.
Not every lender offers interest only on investment loans, and those that do may charge a slightly higher rate or apply stricter serviceability tests. If cash flow is tight in the early years, this feature is worth prioritising over a marginally lower rate on a principal and interest product.
Variable Rates Offer Flexibility That Fixed Rates Don't
A variable rate moves with the market, which means your repayments can go up or down, but it also means you can make extra repayments, access offset accounts, and redraw funds without penalty.
Fixed rates lock in your repayment amount for a set term, usually between one and five years. That certainty can feel reassuring, but it comes with limitations. Most fixed rate investment loans don't allow extra repayments beyond a small annual cap, and you usually can't link an offset account. If you want to pay the loan down faster or use rental income sitting in your account to reduce interest, a fixed loan won't let you.
In our experience, investors who want to build a portfolio over time tend to favour variable rates or a mix of both. A split loan, where part of your borrowing is fixed and part is variable, can give you some rate protection while keeping flexibility on the variable portion. If you're planning to refinance your investment loan or leverage equity within a few years, a fully fixed product might create costly break fees that wipe out any benefit from the locked-in rate.
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The Loan to Value Ratio Determines Whether You'll Pay Lenders Mortgage Insurance
Your loan to value ratio is the amount you're borrowing divided by the property's value, expressed as a percentage.
If you borrow more than 80% of the property's value, most lenders will require you to pay Lenders Mortgage Insurance. LMI protects the lender if you default, and it can add thousands or even tens of thousands to your upfront costs depending on your deposit size and loan amount. For investment property finance, LMI is generally capitalised into the loan rather than paid upfront, but it still increases your total debt and the interest you'll pay over time.
Some lenders offer no LMI loans for certain professions or through specific product structures. Others allow you to borrow up to 90% or even 95% of the property's value for investment purposes, though serviceability becomes much tighter at those levels. If you're close to an 80% LVR, it's often worth waiting a few more months to increase your deposit or looking at whether you can leverage equity from an existing property to avoid the LMI cost altogether.
Rental Income Is Assessed Differently Across Lenders
Lenders don't treat rental income as equivalent to wage income when calculating how much you can borrow.
Most lenders apply a shading factor, which means they'll only count 70% to 80% of the expected rental income when assessing your application. This accounts for vacancy periods, maintenance costs, and the risk that a tenant might not pay. Some lenders are more conservative and shade rental income at 70%, while others go as high as 80%. That 10% difference can change your borrowing capacity by tens of thousands of dollars, especially if you already own one investment property and you're trying to purchase a second.
Lenders also handle negative gearing differently under the recent budget changes. If you're buying an established property acquired after May 2026, any net rental loss from 1 July 2027 onwards can only be offset against other residential property income, not your salary. That doesn't affect your ability to borrow now, but it does change the tax outcome and cash flow, which is worth understanding before you commit. New builds remain fully negatively geared under the old rules, and this can improve both your serviceability and your after-tax position. We regularly see this tip the decision towards a newer property for buyers who are on a single income and need every dollar of rental income to count.
Rate Discounts Are Negotiable, But Only If You Know What to Ask For
The interest rate advertised on a lender's website is rarely the rate you'll actually pay.
Most investment loan products have a base rate and a discount that's applied depending on your loan amount, LVR, and whether you're a new customer or refinancing. A 0.20% to 0.50% discount is common, but it's not automatic. If you don't ask, or if your broker doesn't push for it, you'll end up on the standard rate. Over the life of a loan, even a 0.30% difference can amount to thousands of dollars in extra interest.
Some lenders also offer better discounts if you're borrowing above a certain threshold, usually around $500,000 or $750,000. Others reserve their lowest rates for customers who bundle multiple products, such as holding both an owner-occupied loan and an investment loan with the same lender. That can be useful if you're planning to buy your first investment property while still holding a mortgage on your own home, but it's not always the most competitive option overall. The lender offering the lowest rate on your investment loan might not be the one offering the lowest rate on your home loan, so bundling can sometimes lock you into a compromise on both.
Not All Lenders Allow You to Use Equity for Future Purchases
If you're planning to build a property portfolio, the structure of your first investment loan matters as much as the rate.
Some lenders restrict how you can use equity from an investment property. They might allow you to refinance and release equity for renovations or debt consolidation, but not for purchasing another investment property. Others cap the number of investment properties they'll finance for a single borrower, especially if you're on a single income. If your goal is to own two or three properties over the next decade, choosing a lender now that supports portfolio growth will save you from having to refinance or split your loans across multiple lenders later.
The way your loan is structured also affects how you can claim tax deductions. If you draw down equity from your investment loan to fund personal expenses or renovations on your own home, that portion of the loan is no longer tax deductible. Keeping your investment borrowing separate and using it only for income-producing purposes protects your ability to maximise tax deductions. A broker can help you set up the loan structure upfront so you're not trying to untangle it years later when you want to access equity or add another property to your portfolio.
Comparing investment loans means understanding what you're trying to achieve, not just finding the lowest number on a comparison website. The right loan depends on your cash flow, your deposit, your income structure, and whether you're planning to hold one property or build a portfolio over time.
Call one of our team or book an appointment at a time that works for you, and we'll walk through your options with a focus on what actually suits your situation.
Frequently Asked Questions
How does rental income affect my borrowing capacity for an investment loan?
Lenders typically shade rental income, counting only 70% to 80% of expected rent when assessing your application. This accounts for vacancy periods and maintenance costs. The shading percentage varies between lenders and can significantly impact how much you can borrow, especially for portfolio investors.
Should I choose a fixed or variable rate for an investment loan?
Variable rates allow extra repayments, offset accounts, and redrawing without penalty, which suits investors planning to pay down debt or build a portfolio. Fixed rates lock in your repayment but limit flexibility and may incur break costs if you refinance early. Many investors use a split loan to balance certainty with flexibility.
What loan to value ratio should I aim for to avoid paying Lenders Mortgage Insurance?
Borrowing 80% or less of the property's value generally avoids Lenders Mortgage Insurance. Borrowing above this threshold triggers LMI, which can add thousands to your loan and increases your total interest over time. Some lenders offer no LMI products for certain borrowers or professions.
Can I use equity from my investment property to buy another property?
Some lenders allow you to release equity from an investment property to fund another purchase, while others restrict this or cap the number of investment properties they'll finance. Choosing a lender that supports portfolio growth from the start can save you from needing to refinance later.
Are interest rate discounts on investment loans negotiable?
Yes, most lenders offer rate discounts based on loan amount, LVR, and customer status, but these aren't always automatic. Discounts typically range from 0.20% to 0.50%, and not asking for one can cost you thousands over the life of the loan.
