How to structure an investment property loan properly
Getting an investment property loan isn't just about finding the lowest rate. It's about structuring the finance so it works for your strategy today and when you want to buy the next one. The people who build strong portfolios think about structure first, rate second.
Interest-only vs principal and interest
Interest-only (IO)
You pay only the interest your loan balance doesn't reduce. This maximises cash flow and is useful if you're planning to sell before the IO period ends. IO periods are typically 5 years, then the loan reverts to P&I.
Principal and interest (P&I)
You pay both your balance reduces and you build equity faster. P&I rates are typically lower than IO rates. The better long-term choice for most investors.
If your plan is to hold long-term, P&I often wins. If you're maximising borrowing capacity for the next purchase in the short term, IO might free up cash flow. We'll model both for your actual numbers.
Loan structure options
Standalone investment loan
Separate, clean loan in your own name. Simple and easy to track for tax purposes.
Split loan
Part fixed, part variable. Rate certainty on a portion while keeping flexibility on the rest.
Portfolio loan
Multiple properties under one facility. Efficient at scale more complex to manage.
Why you must keep investment debt separate
Your investment loan must be completely separate from your owner-occupied home loan. Mixing them creates a "contaminated loan" and you may lose the ability to claim the investment interest as a tax deduction. Your broker and accountant should be aligned on this from day one.
Building a property portfolio?
Let's map the finance structure around your strategy before you commit to anything.
Using equity to fund your next purchase
Usable equity is generally 80% of your property's current value minus what you still owe. For example:
Equity example
That $200,000 could fund the deposit on your next investment without touching your savings. A broker structures this so both loans remain clean and your borrowing capacity is preserved.
What lenders look at for investment loans
- Higher interest rate buffer applied to stress-test serviceability
- Rental income typically counted at 70–80% of market rate
- Existing debts (home loan, car, cards) all reduce borrowing capacity
- Some lenders restrict high-density apartments, short-term rentals, and certain postcodes
Knowing which lenders are investor-friendly and which aren't is where a broker earns their place.