Home Loans 101: A Complete Guide for Property Investors

Home Loans 101: A Complete Guide for Property Investors

An investment home loan works much like a home loan you live in, but with higher rates, stricter lending rules and different tax treatment. In October 2026 the average investor variable rate is 6.89%, about a quarter of a percentage point above owner-occupier loans. Most investors need a 20% deposit or equity to avoid lenders mortgage insurance, and the choices that matter most are repayment type, fixed or variable, and how you structure the loans for tax.

How investment loans differ from owner-occupier loans

Investment loanOwner-occupier loan
Average variable rate (October 2026)6.89%6.63%
Interest-only availableCommonly, for up to five years at a timeLess common, and usually priced higher
Typical maximum LVR without LMI80%80% (or 95% with the First Home Guarantee for eligible first home buyers)
Interest tax deductibleGenerally yes, against the property’s incomeNo
Government deposit schemesNot availableAvailable to eligible buyers

Rates from Canstar, as at 2 October 2026, for a $600,000 principal and interest loan at 80% LVR. See current investor home loan rates.

The main loan types

Loan typeHow it worksSuits investors who
Variable rateRate moves with the market; offset and extra repayments usually allowedWant flexibility, an offset or may sell within a few years
Fixed rateRate locked for one to five years; limited extra repaymentsNeed certainty on repayments while rates are rising
Split loanPart fixed, part variableWant some certainty and keep an offset on the variable part
Interest-onlyPay interest only for a set period, then principal and interestWant to maximise cash flow or pay down a home loan first
Principal and interestRepay the loan over the termWant the lowest rate and to build equity

Interest-only repayments are lower at first, but the rate is usually higher and repayments jump when the interest-only period ends. On a $600,000 loan at 6.89%, interest-only costs $3,445 a month; principal and interest over 30 years costs about $3,948.

How much deposit you need

Most lenders want a 20% deposit to avoid lenders mortgage insurance, plus stamp duty and buying costs, which can add another 4% to 6% of the price depending on the state. Some lenders will go to 90% or 95% with LMI, but usually at a higher rate.

If you own a home, you can often use its equity instead of cash. Usable equity is generally 80% of your home’s value minus what you owe. For example, a $900,000 home with a $450,000 loan has $270,000 of usable equity. Set it up as a separate loan secured by your home, used only for the investment, so the interest is easier to track for tax.

Tax: what’s deductible and what’s changing

Interest on a loan used to buy a rental property is generally tax deductible, along with costs such as rates, insurance, repairs and property management. If those costs exceed the rent, the property is negatively geared.

The rules are changing for new purchases:

  • From 1 July 2027, losses on established residential property bought after 7.30 pm AEST on 12 May 2026 can only be offset against residential property income and gains, not your salary. Unused losses carry forward.
  • Properties held before that time keep the current rules until sold. Eligible new builds keep negative gearing.
  • Capital gains. From 1 July 2027 the 50% CGT discount is replaced by indexation with a 30% minimum tax on gains made after that date.
  • SMSF borrowing. Since 10 August 2026, self-managed super funds can no longer take out new loans to buy residential property. See SMSF home loans.

Loan structure affects how much you can claim. Keep investment debt separate from personal debt and use an offset rather than redraw. See how to structure loans for tax.

Choosing a lender

  • Compare the comparison rate and the features you’ll use, not just the headline rate.
  • Ask how the lender treats rental income and your other debts, which decides how much you can borrow next time.
  • Consider a package if you’ll have several loans; one annual fee can cover them all. See comparing investment loan packages.
  • Before you apply, work through the investment loan approval checklist.

Frequently asked questions

How much deposit do I need for an investment property?

Usually 20% of the purchase price to avoid lenders mortgage insurance, plus stamp duty and buying costs. Some lenders accept 10% or less with LMI, often at a higher rate. Government schemes that allow a 5% deposit without LMI are for owner-occupiers, not investors.

Can I use equity from my home as a deposit?

Yes. Most lenders let you borrow against your home’s equity, usually up to 80% of its value minus your current loan, to fund the deposit and costs. Set it up as a separate loan secured by your home so the investment debt stays clearly separate for tax.

Are investment loan interest costs tax deductible?

Generally, yes, when the loan is used to buy an income-producing property. From 1 July 2027, losses on established residential property bought after 12 May 2026 can only be offset against residential property income, though the interest still counts against the rent. Get advice from a registered tax agent for your situation.

Sources

General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.