Your first investment loan sets up habits and structures you’ll live with for years, so it pays to get it right. The essentials: aim for a deposit of at least 20% (or use equity) to get sharper investor rates and avoid LMI, keep the investment loan separate from your home loan, use an offset account rather than redraw, choose interest-only or principal and interest deliberately, and keep a cash buffer for vacancies and rate rises. Then compare investor rates for your exact situation, not the headline rates.
1. Know what investor rates look like
Investor loans cost more than owner-occupier loans. As at 2 October 2026, the average investor variable rate was 6.89% and the lowest advertised around 5.94% (Canstar, $600,000 loan, 80% LVR, principal and interest). Interest-only rates are usually higher again. See investor home loan rates for why.
2. Get your deposit to 20%, or use equity
At 80% LVR or below you avoid lenders mortgage insurance and access better pricing. If you own your home, you may be able to use its equity as the deposit through a separate loan secured against your home. Our guide to home loans for property investors explains how equity lending works.
3. Get pre-approved and know your borrowing limit
Lenders assess investment loans at your rate plus a 3 percentage point buffer, and most count only part of the expected rent. Get pre-approval before you make offers, and make sure your documents are ready. See the investment loan approval checklist.
4. Keep loans separate, and avoid cross-securing
- Separate loans for separate purposes. Keep your home loan and investment loan in separate accounts, so the interest on the investment borrowing is easy to identify for tax.
- Avoid cross-collateralisation where you can. If both properties secure one lender’s loans, selling or refinancing one can mean the lender revalues and reassesses everything.
5. Use an offset account, not redraw
An offset account reduces interest while keeping your loan balance intact. If you pay extra into an investment loan and redraw it later for private spending, you can reduce the interest you can claim. Many investors keep their savings in an offset against their home loan (non-deductible debt) instead.
6. Choose interest-only or principal and interest on purpose
| Interest-only | Principal and interest | |
|---|---|---|
| Repayments on $600,000 at 6.89% | about $3,445 a month | about $3,948 a month |
| Loan balance | Doesn’t fall during the IO period | Falls with every repayment |
| Rate | Usually higher | Usually lower |
| Suits | Investors prioritising cash flow, often with non-deductible debt to pay down | Investors who want to build equity and pay the lowest rate |
Interest-only periods are usually limited to around five years for investors, and repayments jump when they end. See interest-only strategies for investors.
7. Keep a cash buffer
Plan for at least a few months of loan repayments and property costs in an offset or savings account, to cover vacancies, repairs and further rate rises. Each 0.25% rise adds about $99 a month on a $600,000 loan.
8. Compare the whole package, not just the rate
Look at fees, offset availability, interest-only terms and the lender’s policy on rental income and future borrowing. A slightly higher rate can be worth it if the lender will support your next purchase. See comparing investment loan packages.
9. Avoid the common mistakes
Using redraw for personal spending, cross-securing properties, choosing the wrong loan structure and running with no buffer are the most expensive early mistakes. Read common investor mortgage mistakes before you settle.
10. Get tax advice before you settle
Loan structure affects what you can claim. Speak to a registered tax agent about how to set up your loans before settlement, not after.
Frequently asked questions
Should my first investment loan be interest-only?
It depends on your goals. Interest-only lowers repayments and frees up cash flow, which can help if you still have a non-deductible home loan to pay down. Principal and interest usually has a lower rate and builds equity. Many investors start interest-only for a few years, then switch.
Should I use the same lender as my home loan?
Not necessarily. Using the same lender can be convenient but may lead to cross-securing both properties. Using a different lender can keep each property separate and give you more flexibility when you sell or refinance. Compare rates and policy either way.
How much buffer should I keep for vacancies?
A common rule of thumb is three to six months of loan repayments and property costs, held in an offset or savings account. Keep more if the property is older, in a market with longer vacancies, or if your income is variable.
Sources
- Canstar, Average home loan interest rates, as at 2 October 2026
- APRA, Macroprudential policy settings, May 2026
- Australian Taxation Office, Interest expenses on rental properties
- ASIC Moneysmart, Interest-only home loans
General information only. It does not consider your objectives, financial situation or needs and is not credit or tax advice.