Investment Finance
How do Investment Property Loans Work?
5 min read- Finance Guide
- Updated 2026
Quick answer
Preferred LVR to avoid LMI
80% OR LOWER
Some lenders go above 80% subject to policy
- Interest only periods Up to 5 years
- Max loan term Up to 30 years
- Serviceability buffer +3% (APRA)
- Rental income Partial — net of vacancy
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Detailed Explanation
Investment property finance works much like a standard home loan, but the lender treats the property as an investment asset rather than an owner occupied home. That affects pricing, document requirements, rental income assessment, and loan structure.
Loan Structure and Deposit
The property is used as security for the loan
You contribute a deposit or use equity from another property
Many lenders prefer 80% LVR or lower
Loans above 80% LVR may trigger LMI or tighter policy settings
Terms up to 30 years, depending on lender policy and borrower age
LVR zones — investor loans
-
At or below 80% LVR No LMI — widest lender choice
Best terms -
Above 80% LVR Higher pricing, fewer lenders, LMI applies
LMI likely
Investor loans priced differently
Investment rates
and policies are stricter than owner-occupied
How lenders assess investor loans
Lenders check
employment or business income- They review
existing debts and living expenses
- They assess the
property and expected rent
- They apply
serviceability testing above the actual loan rate
Serviceability buffer +3% (APRA)
Tested at rate above actual loan rate — APRA buffer held at 3 percentage
points
How rental income is treated
- Rental income
can support servicing but lenders usually verify it first
- Lenders often
do not use all gross rent — they allow for vacancy and property
costs
- Rental income
on existing properties must be verified through agent statements,
lease evidence, or valuation support
- Where the
property already exists, rental income commonly has to be verified
through agent statements, lease evidence or valuation support
How lenders shade gross rental income
- Rental income used for servicing
- Deducted for vacancy and property costs
Interest only and tax treatment
Some investors choose interest only repayments to reduce initial cash flow pressure
On an interest-only loan, payments cover only interest, so the principal doesn’t reduce during that period
MoneySmart notes this period can be, for example, around 5 years, depending on the loan terms
The ATO states interest on rental property loans is generally deductible, but principal repayments are not
Interest — generally deductible
The ATO states that interest on money borrowed to buy a rental property can generally be deductible
Principal repayments — not deductible
Principal repayments are not deductible — only the interest component qualifies
Need Help with your Project?
Common Problems
Investor loans can become harder when the deposit is too small, servicing is tight or the expected rent does not support the structure.
Small deposit or high LVR
A high LVR can limit lender choice, increase pricing or require LMI.
Possible solutions include:
increase the cash deposit- use equity from another property
- reduce the purchase price
- choose a lender with policy for higher LVR investor loans
Servicing shortfall
Some borrowers have strong assets but still do not meet lender serviceability rules because of other debts, living costs or the 3 percent serviceability buffer.
Possible solutions include:
- reduce
unsecured debts
- close unused
credit card limits
- restructure
existing loans
- lower the
target purchase price
Rental income or property issues
The rent used by the borrower may be higher than what the lender is willing to accept, or the property may not suit lender policy.
Possible solutions include:
- provide
current lease and rental statements
- use a
realistic rental estimate
- select a more
acceptable property type
- increase
deposit or equity contribution
Steps to get Finance
Step
01
Review your deposit, equity, income and existing debts
Step
02
Confirm borrowing capacity and likely investor loan structure
Step
03
Obtain pre approval before making offers where possible
Step
04
Submit the full application with income and property documents
Step
05
Complete valuation, formal approval and loan documents
Step
06
Settle the property and begin repayments under the agreed structure
Speak With An Investment Property Loan Specialist.
Investment loans vary based on deposit size, rental income, tax position, existing debts and whether the loan is principal and interest or interest only.
Lender policy can differ widely on LVR, acceptable rent, servicing treatment and property type. A proper review can identify realistic borrowing capacity, whether LMI is likely to apply, and which lenders are genuinely suitable for the scenario.
Speak with an investment property loan specialist about your scenario.
Submit the form to have your investment property scenario reviewed.
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Additional Questions
You may also find these questions helpful
-
01How much deposit is required for an investment property loan?
-
02Can you use equity instead of cash deposit for an investment loan?
-
03How do lenders assess rental income for investment loans?
-
04Are interest only repayments available on investment property loans?
-
05What loan to value ratio do lenders allow for investment properties?
