Top 10 Ways to Structure Investment Loans for Growth

If you're looking at property investment in Templestowe, the loan structure you choose now shapes what you can do next year and five years from now.

Investment loan features matter more than rate alone. The difference between interest-only and principal-and-interest repayments, the way offset accounts are treated, and whether your loan allows top-ups or equity release all determine how quickly you can reinvest, how much cash you retain, and whether your portfolio can grow beyond one property. We work with investors who want to understand how loan structure connects to property strategy, not just how to get approved.

Match Repayment Type to Your Cash Flow Goals

Interest-only repayments reduce your monthly outgoings and preserve capital for reinvestment or lifestyle expenses. Principal-and-interest repayments build equity faster and reduce the outstanding loan amount over time.

Consider an investor who buys a two-bedroom unit near The Pines Shopping Centre with rental income covering most of the loan cost. They choose interest-only for the first five years to keep repayments lower while they save a deposit for a second property. At the end of the interest-only period, they refinance and convert to principal-and-interest, using the rental income from both properties to service the higher repayment. That structure gave them time to grow the portfolio without stretching their income in the early years. The loan type you choose should reflect whether you're prioritising equity growth or access to cash.

How Offset Accounts Work Differently for Investors

Most lenders do not offer offset accounts on investment loans, or they offer them with a higher interest rate than the equivalent loan without an offset. Where an offset is available, interest saved in the offset is not tax-deductible because you are reducing the interest expense itself.

If you're holding surplus cash for future deposits or renovations, a redraw facility may be more suitable than an offset. Redraw lets you access extra repayments you've made without requiring a separate account, though you should confirm with your lender whether redrawn funds affect the deductibility of future interest. We regularly see investors assume offset accounts work the same way across owner-occupied and investment loans, and that assumption can cost them either in rate or in tax efficiency.

Fixed vs Variable Rate for Investment Property

Variable rates allow you to make extra repayments, access redraw, and refinance without break costs. Fixed rates lock in your repayment amount for a set period, which can help with budgeting but limit flexibility if your circumstances or the market change.

In our experience, investors who plan to hold a property for ten years or more and who may want to access equity release to fund further purchases tend to favour variable rates. Investors with tighter cash flow or who are close to their borrowing capacity often choose a fixed rate for part of the loan to manage repayment certainty. You can split a loan between fixed and variable, though some lenders apply higher rates to split loans or charge separate fees for each portion.

Loan to Value Ratio and Lenders Mortgage Insurance

Lenders calculate loan to value ratio by dividing your loan amount by the property's value. Most lenders charge Lenders Mortgage Insurance if your LVR exceeds 80 per cent on an investment property.

LMI protects the lender, not you, and is typically added to your loan amount rather than paid upfront. On a property valued at the current Templestowe median, LMI at 90 per cent LVR can add several thousand dollars to your borrowing. If you have equity in your home or another investment property, using that equity to keep your LVR at or below 80 per cent avoids LMI and can also secure a lower interest rate. Lenders apply serviceability buffers and debt-to-income caps when assessing investment loan applications, and those limits apply whether or not you pay LMI.

Rental Income and Serviceability Calculations

Lenders assess rental income differently depending on whether the property is tenanted at the time of application. Most lenders will use between 70 and 80 per cent of the rental income when calculating serviceability, reducing the income to account for vacancy, maintenance, and body corporate costs.

If the property is not yet tenanted, lenders may use a rental assessment from a licensed valuer or a rental range based on comparable properties. They apply the same percentage reduction regardless. If you're buying in an area with strong rental demand such as Templestowe Lower near Westerfolds Park, the rental assessment is usually straightforward. If you're buying in a location with higher vacancy rates or fewer comparable rentals, expect the lender to apply a more conservative estimate. The percentage of rental income recognised affects how much you can borrow, particularly if you're already close to your maximum borrowing capacity.

Interest-Only Periods and What Happens When They End

Most lenders offer interest-only periods of up to five years on investment loans. At the end of that period, the loan converts to principal-and-interest unless you apply to extend the interest-only term or refinance.

When the loan converts, your repayments increase because you're now paying down the principal over the remaining loan term. If your loan had 25 years remaining when you took it out and you've been on interest-only for five years, you'll be repaying the principal over 20 years, not 25, which raises the repayment further. Some lenders allow a second interest-only period, but approval depends on your serviceability and equity position at the time. If you're planning to rely on ongoing interest-only repayments, structure your loan with a lender who offers flexibility on renewals and confirm the criteria before you settle.

Tax Deductibility and Keeping Borrowings Separate

Interest on an investment loan is deductible when the funds are used to purchase or hold an income-producing property. If you redraw funds from an investment loan and use them for private purposes, the interest on the redrawn portion is not deductible.

We recommend keeping your investment borrowings separate from your owner-occupied home loan. If you're using equity from your home to fund an investment deposit, structure it as a separate split or loan account so the interest on that portion remains deductible. Do not mix redraws or redraw amounts used for private purposes with amounts used for investment. Your accountant will need clear records at tax time, and lenders assess deductibility based on the purpose of the borrowing, not the security.

Negative Gearing and Recent Law Changes

Negative gearing allows you to offset rental losses against your other income, reducing your taxable income. From 1 July 2027, rental losses on residential properties purchased after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward, not against salary or wages.

Properties purchased before that date and time, or eligible new residential builds, continue under the current rules. If you're considering an established property in Templestowe, the change means rental losses will be quarantined unless you already own other investment properties with positive rental income. For investors buying new builds that increase dwelling numbers, negative gearing remains available. The law distinguishes between properties that add housing supply and those that do not, and that distinction affects both tax treatment and investment loan options going forward.

Refinancing Investment Loans to Access Equity

As your property increases in value or your loan balance decreases, you build equity. Refinancing lets you access that equity without selling the property, and you can use it as a deposit for another investment or for renovations that increase rental yield.

Lenders reassess your serviceability and LVR when you refinance. If property values in Templestowe have risen and your equity position has improved, you may qualify for a lower interest rate or access additional funds without paying LMI. If your income or circumstances have changed, or if you've taken on other debt, you may find your borrowing capacity is lower than when you first purchased. Refinancing works when the numbers support it, and timing matters. Refinancing too early in a fixed-rate term can trigger break costs that outweigh any benefit from accessing equity or securing a lower rate.

Portfolio Growth and Structuring Multiple Investment Loans

If you plan to own more than one investment property, structure each loan separately rather than cross-collateralising them. Cross-collateralisation means one property is used as security for another property's loan, and while it can help you borrow more initially, it limits your ability to sell or refinance individual properties without the lender's consent across the whole portfolio.

Separate loans give you control. You can sell one property, refinance another, or negotiate with different lenders as your portfolio grows. Lenders apply debt-to-income caps and serviceability buffers across your total borrowing, so even with separate loans, your ability to borrow for a third or fourth property depends on your income, existing debt, and the rental income from properties you already own. Structuring loans separately from the beginning makes it simpler to manage your portfolio as it grows and keeps your options open if you need to adjust your strategy.

Frequently Asked Questions