Investment Property Loans: Key Factors Including Rates, LVR and Tax

Should You Consider an Investment Property Loan?

In Australia's property market, many investors use loans to build portfolios and leverage growth. Understanding rates, Loan-to-Value Ratio (LVR), loan types and tax implications helps you make informed choices—whether you're a first-time investor or expanding.

Understanding Interest Rates on Investment Loans

Investment loans typically carry slightly higher interest rates than owner-occupier loans, as lenders view them as higher risk. Rates can be fixed (locked for predictability) or variable (fluctuating with market conditions).

Key point: Investment rates are often 0.2–0.5% higher than equivalent owner-occupier products.

Fixed rates offer certainty in repayments, ideal if you expect rates to rise or want stable cash flow budgeting. Variable rates provide flexibility, such as offset accounts or extra repayments, and may drop if the market shifts.

Rates change frequently—shop around or consult a broker for current options across multiple lenders.

What is LVR (Loan-to-Value Ratio)?

LVR measures how much you borrow against the property's value. It's calculated as: (Loan Amount ÷ Property Value) × 100.

For example, borrowing $400,000 on a $500,000 property gives an 80% LVR.

Lenders use LVR to assess risk:

• Lower LVR (e.g., ≤80%) → Often better rates, no Lenders Mortgage Insurance (LMI).
• Higher LVR (e.g., >80%) → May require LMI (a one-off premium protecting the lender), plus potentially higher rates.

Many investors target 80% LVR to avoid LMI while maximising leverage.

Types of Investment Property Loans

Common options include:

Variable Rate Loans

• Flexible features like offsets and redraws
• Repayments can rise or fall

Fixed Rate Loans

• Locked rate for 1–5 years
• Predictable budgeting, but limited extra repayments

Interest-Only (IO) Loans

• Pay only interest for a period (usually 5–10 years)
• Lower initial repayments, maximising tax-deductible interest
• Higher repayments later when the principal kicks in

Many investors favour interest-only for cash flow and tax benefits.

Tax Implications and Benefits

Australia's tax system offers advantages for property investors:

• Interest deductibility — Most loan interest is tax-deductible against rental income
• Negative gearing — If expenses (including interest) exceed rental income, the loss offsets other taxable income (e.g., salary), reducing your tax bill
• Depreciation — Claim deductions for the property's declining value and fixtures
• Capital Gains Tax (CGT) — On sale, profit is taxable, but holding >12 months qualifies for a 50% discount

Keep detailed records and consult a tax advisor—rules are specific and can change.

Potential Drawbacks

• Higher rates and fees than owner-occupier loans
• LMI if LVR >80%
• Interest-only periods end, increasing repayments
• Market risks affect rental yields or property values

When Does an Investment Loan Make Sense?

Worth considering if you:

• Have stable income to service the loan
• Aim for long-term growth via capital appreciation
• Want to leverage tax deductions/negative gearing
• Build a diversified portfolio

Direct bank approach may suit if you:

• Have a simple situation
• Already bank with them and like their rates

Tips for Securing a Competitive Investment Loan

Success depends on your finances (income, credit, deposit). A strong profile unlocks better rates and terms.

A mortgage broker accesses a wider lender panel, compares options, and strengthens your application—especially useful for investors with multiple properties or complex income.

The Bottom Line

Investment property loans are a powerful tool for wealth building in Australia, thanks to leverage and tax treatment. They require careful planning around rates, LVR, cash flow and risks.

If you're exploring investment lending, a broker can help compare scenarios and find structures that fit your goals.

Take time to choose the right broker upfront to make the process smoother. Start by exploring your options with us or get in touch directly to discuss your needs.