Investment Loan Features: What to Check and What to Skip

The right investment loan features depend on how you plan to hold the property, not on the headline rate alone.

For Everton Park investors, the decision usually comes down to three things: how you repay the loan, how you use any offset or redraw, and how much a lender will let you borrow. Each choice has a cost or trade-off, and they affect each other.

Which Investment Loan Features Matter Most?

The features worth comparing are the repayment structure, the offset or redraw facility, the rate type, and how the lender assesses your rental income. Rate type is a choice between a variable rate, a fixed rate, or a split of both.

A variable rate moves with the lender's pricing. A fixed rate gives certainty for a set period, but the extra repayments, offset and redraw options on a fixed portion depend on the lender. Break costs can also apply if you exit a fixed loan early, and how they are calculated varies. Rate discounts differ between lenders too, so it pays to compare the full package rather than one number.

Interest Only vs Principal and Interest: A Worked Example

An interest-only loan lowers your repayments during the interest-only period, but the loan balance stays the same and repayments rise when principal and interest begins.

Consider an investor with a $500,000 loan on a 30-year term. These figures use an illustrative rate of 6.75% p.a., not a current offer.

• Interest only for the first five years: about $2,813 per month.
• Principal and interest over the full 30 years: about $3,243 per month.
• Principal and interest after a five-year interest-only period: about $3,455 per month, because the balance is repaid over the remaining 25 years.

The investor saves roughly $430 per month in the first five years, which helps cash flow while the property is being leased and set up. The cost is that after five years they still owe $500,000, and their repayments rise by about $642 per month. Rental income may cover some of that, but it is not certain.

There is also a borrowing capacity effect. APRA expects banks to assess an interest-only loan on principal and interest repayments over the remaining term, so interest only does not increase how much you can borrow. Banks must also test your ability to repay at a rate at least 3 percentage points above the loan rate. You can check your position with our borrowing capacity page before you commit to a structure.

Offset Accounts and Redraw: Protecting Your Interest Deduction

An offset account reduces the interest charged on your loan, while a redraw facility lets you withdraw extra repayments. How each affects your tax deduction is worth confirming with the ATO or an accountant.

Interest on money borrowed for a rental property is deductible, but only to the extent the property is rented or available for rent. Under ATO ruling TR 2000/2, a redraw is treated as a new borrowing, so using redraw funds for personal spending can make part of your interest non-deductible. An offset balance lowers the interest you incur, so your deduction is smaller too. That is not a drawback, because you are paying less interest overall. How withdrawals from an offset account are treated for tax should be confirmed with the ATO or your accountant.

The trade-off is that offset accounts can come with a fee or a different rate, and some lenders offer only a partial offset. Check these details for each product. Your accountant can confirm how the rules apply to your situation.

Does Negative Gearing Still Apply to Investment Property?

Negative gearing still applies, but the rules depend on when you buy and whether the property is established or a new build.

Losses on residential properties held at 7:30pm AEST on 12 May 2026, including those under contract at that time, can still be deducted against other income such as salary until the property is sold. Eligible new builds acquired after that date can also keep this treatment.

For established residential properties bought after that time, the rules change from the 2027-28 income year. Net rental losses can then only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward. Until 30 June 2027, properties bought after 12 May 2026 can be negatively geared under the current rules.

Separately, the 50% CGT discount applies to gains accruing up to 1 July 2027. After that, cost base indexation and a 30% minimum tax rate apply to gains accruing from that date. These rules are complex, so speak with your accountant before you buy. A loan that relies on a tax deduction to be affordable carries risk if your circumstances change.

Loan Amount, LVR and Rental Income: How Lenders Assess Your Investment Loan

Lenders set your investment loan amount using your income, existing debts, the property's loan to value ratio (LVR) and a reduced share of the expected rent.

APRA's view is that prudent lenders count no more than 80% of expected rental income, to allow for vacancy. Lenders generally do not count rent in full, and the share they count varies by lender. Lenders also place less weight on a rental appraisal than on actual rent received, and their policies on this vary.

Borrowing above 80% LVR generally requires Lenders Mortgage Insurance (LMI). The 80% mark is not a legal limit, and each lender sets its own maximum. LMI is paid by the borrower and the cost depends on the loan amount and LVR. Offset balances do not reduce the loan amount for LVR purposes.

If you already own a property, a refinance may let you restructure the debt, though discharge and valuation costs can apply, depending on the lender. A loan health check is a useful first step to see whether your current features still suit your plan.

If you are weighing up an investment in Everton Park or elsewhere, call one of our team or book an appointment at a time that works for you through our booking page. We will compare the features across lenders and explain the trade-offs before you apply.

Frequently Asked Questions