Investment property loans: structure first, then the rate.

Equity, and how to use it without tangling the properties

Some buyers use available equity in an existing home towards an investment purchase, subject to lender assessment. The equity a lender will release is the difference between a percentage of the home’s value, usually 80% to avoid insurance, and the loan against it. There are two ways to use it. The first is to cross-secure: one loan over both properties. Cross-security can make the release of one property dependent on the lender’s consent and reassessment of the remaining security.

The second is to keep the securities separate: release equity from the home as a distinct loan or split, then borrow against the investment property on its own. Separate securities may reduce interdependence, but release and refinance remain subject to the loan documents and lender requirements. Separate loan records can help trace how borrowed funds are used; your accountant assesses any interest deduction. Our default recommendation is separate securities, and the written position explains when it is not.

How rental income is counted

Rental income may be discounted for serviceability; the treatment depends on the lender and property. Most take a percentage, commonly 70% to 80% of the gross rent, to allow for vacancy, management and maintenance, and some apply a lower figure to particular property types, postcodes or short-stay arrangements. Rent from a property you already own is evidenced by statements or a lease; rent for the property you are buying is taken from a rental appraisal or the valuer’s estimate. Negative gearing benefits are counted by some lenders and not others, and rarely in full. The lender is chosen after this working, because the same rent produces different borrowing power at different lenders.

Interest only, and what it is for

An interest only period keeps repayments to the interest for a set term, commonly up to five years, after which the loan reverts to principal and interest over the remaining term, with a higher repayment. Investors use it to direct cash to non-deductible debt, usually the home loan, while the investment debt stays level. Interest-only pricing varies. ADIs assess capacity for the later principal and interest repayments over the remaining repayment term; the effect on borrowing power depends on the application.

Whether interest only suits you is partly a tax question, and we do not give tax advice. Whether interest only is appropriate depends on affordability, costs, repayment plans and the borrower’s circumstances, with tax advice where relevant.

The debt to income limit from February 2026

From 1 February 2026, APRA has limited the banks and other ADIs it regulates to writing no more than 20% of their new mortgage lending to borrowers whose total debt is six or more times their gross income, measured separately for owner-occupier and investor lending, with exemptions that include owner-occupier bridging and loans to buy or build a new dwelling. DTI is a separate measure based on total debt and gross income; rental-income discounts used for serviceability should not be substituted into that calculation. The limit applies to each ADI’s lending portfolio, not as an automatic borrowing ceiling or entitlement for an individual applicant. The serviceability buffer of at least three percentage points above the loan rate continues to apply alongside it.

Building the second and third property

The order matters. Each purchase uses equity and adds debt, and borrowing power with a given lender falls as commitments grow. Lender selection, securities, available buffers and current valuations are assessed before another purchase; the structure depends on the borrower’s circumstances. Ownership changes can have duty and other tax consequences; obtain legal and tax advice before deciding the ownership structure. That decision is for your accountant and lawyer; the lending is then built around it.

Turning your home into the investment

Keeping the home you have as a rental when you buy the next one is common and it changes the treatment of both loans from that day. Interest deductibility depends on the use of the borrowed funds and the property’s income-producing use. Private redraws and periods of private use can affect the deductible amount; your accountant should check the loan history. Redrawing from the old loan to fund the new home can taint it. Offset balances behave differently. The lending structure has to be set before contracts are signed, with tax advice alongside, because it is expensive to fix afterwards.