An investment loan application is judged on your whole financial picture, not just the property you want to buy. If you're in Narrabundah and thinking about buying a rental, the biggest lever you have is how well your application is set up before a lender sees it.
There are real upsides to borrowing for an investment, and there are real costs. Let's walk through both.
How Does an Investment Loan Application Work?
A lender assesses your income, debts, living costs and the loan you're asking for, then decides if you can afford it with a buffer. Banks and other authorised deposit-taking institutions must test new borrowers at an interest rate at least 3.0 percentage points above the loan's actual rate.
If a loan has a rate of 6.75% p.a. (an illustrative rate only), the lender would test your ability to repay at 9.75% p.a. That's why your borrowing capacity can come out lower than you expect, even when the repayments look comfortable today.
Existing debts count too. Lenders ask about the balance, rate and term on each loan, and they usually apply a notional repayment to credit cards based on the limit, not the balance. Closing cards you don't use before you apply can lift your result.
The Pros: Why Borrowing to Invest Can Work
The main upside is that you can hold a property using a loan rather than only your own cash. The rent can help cover costs, and interest on money borrowed for a rental is generally deductible against rental income.
Other holding costs such as council rates, insurance, property management fees and repairs are also deductible for the period the property is rented or genuinely available for rent. Only the interest part of a principal and interest repayment is deductible. The principal part is not. Talk to your accountant about how this applies to you, because the outcome depends on your circumstances.
The trade-off is that a deduction only softens the cost. You still pay out more in interest than you save in tax.
The Cons: Where Applications Get Harder
Investment loans face tougher assessment than owner-occupier loans in several ways. Investor loans and interest-only loans generally attract higher risk weights for banks under APRA's capital rules, and that cost can flow through to pricing.
Lenders also don't count all your expected rent. APRA's guidance says a prudent lender allows a minimum 20% haircut, so no more than 80% of expected rent is counted. A lender will usually put less weight on a rental appraisal for a property you haven't yet leased than on actual rent received.
There is also a debt-to-income limit. Since 1 February 2026, each bank can lend only up to 20% of its new mortgage lending at a debt-to-income ratio of six times or more, with separate limits for investor and owner-occupier lending. It is a limit on the bank's overall portfolio, not on you personally, and APRA has noted that high debt-to-income lending was well below the limit at its last update. It can still shape how a lender treats a heavily geared application.
Ready to get started?
Book a chat with a Mortgage Brokers at Goodwin Home Loans today.
Interest Only or Principal and Interest: A Worked Example
Interest-only repayments are lower in the early years, but they don't reduce your loan and they don't increase how much you can borrow. Lenders assess an interest-only loan using the principal and interest repayment over the remaining term after the interest-only period ends.
Consider an investor who borrows $600,000 and is weighing a 30-year loan at the illustrative rate of 6.75% p.a. The options look like this:
- Principal and interest over 30 years: about $3,892 per month.
- Interest only for five years: about $3,375 per month, which is roughly $517 a month less.
- After the interest-only period: about $4,145 per month, because the full $600,000 must now be repaid over the remaining 25 years.
The investor chooses interest only to keep cash flow comfortable while the property is being leased. The outcome is a lower repayment for five years, followed by a repayment about $253 a month higher than the 30-year principal and interest figure, with the full $600,000 still owing. The lender also has to reassess you if you want to extend the interest-only period later. Interest is deductible under either structure, and you should confirm the tax position with your accountant. Use a repayment calculator to test your own numbers.
Does the Deposit Size Change Your Application?
Yes. Lending above 80% of the property's value usually needs lenders mortgage insurance, and that is paid by you as the borrower. The 80% mark is not a legal limit. It is the point where insurance is generally required, and each lender sets its own caps and policies above it.
The cost of a smaller deposit is the insurance premium on top of a larger loan and higher repayments. The upside is that you can buy sooner. If you already own a home, you may be able to use equity as part or all of the deposit. That means a bigger total debt, so it needs careful testing against your borrowing capacity.
If you use equity from an existing property, the way you use the funds decides whether the interest is deductible. Interest on money used for private purposes, such as a holiday, is not deductible, even if the loan is secured by an investment property. Keeping the investment borrowing separate from private spending makes the records much cleaner at tax time.
What Changed for Negative Gearing in 2026?
For established homes bought after 7:30pm AEST on 12 May 2026, net rental losses will only be deductible against other residential property income from the 2027-28 income year. Properties held at that time, and eligible new builds, keep the current treatment.
Properties bought between that time and 30 June 2027 can use the current rules only until 30 June 2027. The change does not affect whether interest is deductible. It affects how a net rental loss can be used. Before you commit, ask your accountant how it applies to the property you're considering. Capital gains tax rules are also changing from 1 July 2027, so it's worth raising that in the same conversation.
Preparing Your Application in Narrabundah
The suburb sits in South Canberra, and our page on a mortgage broker in Narrabundah has more on how we work with local clients. A broker can compare lenders and match your situation to a lender's policy before you apply.
It also helps to settle your loan structure early. If you're buying with equity from a current home, or reviewing an existing loan first, a look at refinancing options can show what's available. Our investment loans page covers the structures we commonly arrange.
The cost of using a broker is that you share detailed financial information, which takes some preparation. The benefit is a clearer picture of your capacity before you make an offer.
Frequently Asked Questions
How do lenders assess rental income on an investment loan application?
APRA's guidance says prudent lenders count no more than 80% of expected rent. Lenders also tend to give less weight to rental appraisals than to actual rent received.
Does an interest-only investment loan let me borrow more?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so it doesn't increase borrowing capacity. It lowers early repayments but leaves the loan balance unchanged.
Is all the interest on an investment loan tax deductible?
Interest is generally deductible to the extent the borrowed money is used for a rental property. The principal part of a repayment is not deductible, and private-use borrowing is not deductible. Check your situation with your accountant.
Do I need lenders mortgage insurance for an investment property?
It is generally required when borrowing above 80% of the property's value. The premium is paid by the borrower, and each lender sets its own policy above that level.
