This article first appeared on awesomelendingsolutions.com.au.
Property has long been a popular way for Australians to build wealth. But an investment loan isn't quite the same as a home loan. The rates, rules and tax treatment are different, and 2026 has brought some big changes. This guide explains how investment property loans work today.
What is an investment property loan?
An investment property loan is a loan used to buy a property you'll rent out, rather than live in. In the UK this is called a "buy to let" mortgage. In Australia, we simply call it an investment loan.
Lenders treat investment loans as slightly riskier than owner-occupied loans, so they usually:
- Charge a higher interest rate
- Have stricter rules on how much you can borrow
- Only count part of your rental income
How much deposit do you need?
Most investors need a 10% to 20% deposit plus costs. With a 20% deposit, you avoid Lenders Mortgage Insurance (LMI). Some lenders allow up to 90% or 95% with LMI.
Many investors don't use cash at all. Instead, they use the equity in their home as the deposit. This can let you invest without saving a large cash deposit.
Remember to also budget for stamp duty, which investors pay in full, plus legal fees, inspections and loan costs.
Interest rates for investors
Investment rates are usually a little higher than owner-occupied rates. Interest-only rates are usually higher again. With the cash rate at 4.60% after four rises in 2026, finding a competitive rate matters more than ever.
How lenders assess you
Lenders look at:
- Your income – including the expected rent, usually counted at 70% to 80%
- Your expenses – including the costs of owning the property
- All your debts – including your home loan
- The property – some lenders have limits on unit size, location or property type
Your repayments are tested at your rate plus 3%. From 1 February 2026, APRA also limits banks so that no more than 20% of their new investor lending can go to borrowers whose total debt is six or more times their income. Loans for new builds are exempt.
The 2026 tax changes
This is the biggest change for investors in decades. The new laws, passed in June 2026, mean:
- Negative gearing – for established residential properties bought after 7:30pm on 12 May 2026, rental losses can no longer reduce tax on your wages from 1 July 2027. They can only be used against residential rental income or capital gains, and carried forward.
- New builds – still qualify for negative gearing.
- Existing investments – properties held before the cut-off keep their current treatment.
- Capital gains tax – from 1 July 2027, the 50% CGT discount is replaced with inflation indexation and a 30% minimum tax on gains made from that date.
- Commercial property – the negative gearing changes only apply to residential property.
These changes affect cash flow and long-term returns, so talk to your accountant before you buy.
Interest-only or principal and interest?
- Interest-only – lower repayments, better cash flow, but no reduction in the loan.
- Principal and interest – higher repayments, but you build equity and usually get a lower rate.
Many investors use interest-only on investment loans and pay down their home loan first, because home loan interest isn't tax deductible.
Structuring your loans
Good structure can save you money and stress:
- Keep investment loans separate from your home loan
- Avoid cross-collateralising properties with one lender
- Use an offset account on your home loan
- Use separate splits for different purposes
An example
Michael and Sarah own a home worth $1.2 million with a $500,000 loan. They want to buy a $700,000 new townhouse to rent out.
- They use $175,000 of equity from their home for the deposit and costs.
- They borrow $560,000 against the townhouse.
- Because it's a new build, it keeps access to negative gearing under the 2026 rules.
- Expected rent is counted at around 80% by their lender.
Risks to consider
- Vacancies and maintenance costs
- Rising interest rates
- Falling values (most capitals have fallen in 2026)
- Changes to tax rules
Frequently asked questions
Can I use my home equity to buy an investment?
Yes. This is very common. Your lender will value your home and let you borrow against it, usually up to 80% of its value.
Are investment loan rates higher?
Usually, yes, by a small margin. Interest-only rates are generally higher again.
Does negative gearing still exist?
Yes, for new builds and for properties held before 12 May 2026. It's limited for established homes bought after that date.
Is now a good time to invest?
It depends on your goals and finances. Falling prices can create opportunities, but higher rates and the new tax rules change the numbers.
Talk to Awesome Lending Solutions
Every situation is different, and the right loan depends on your goals, income and timing. At Awesome Lending Solutions, we compare a wide panel of lenders and explain your options in plain English, with no pressure. Call us on 02 7904 9560 or visit awesomelendingsolutions.com.au to book a chat.
This article is general information only. It does not consider your objectives, financial situation or needs, and it is not financial, tax or legal advice. Scheme rules, interest rates and laws were current as at October 2026 and can change. Speak with a licensed professional before making any decision. Albert Waldron is a Credit Representative (CR 407514) of AFG's Australian Credit Licence 389087.
No comments:
Post a Comment