Simple hacks to structure your investment loan

The structure you choose when you take out an investment loan determines how much you can claim, how much you can borrow next time, and how cleanly you can refinance or sell later.

A split loan with one portion interest-only and one portion principal-and-interest is common for investors buying in Edithvale who plan to upgrade their own home within a few years. The interest-only component keeps rental deductions high, while the principal-and-interest portion builds usable equity faster. That equity can then be drawn down for the next deposit without mixing personal and investment purposes, which would otherwise reduce the amount of interest you can claim.

Interest-Only or Principal-and-Interest for Investment Property

Interest-only repayments are lower, which can make the property cash-flow neutral or closer to it. The loan balance stays flat, so all interest paid remains deductible provided the funds were used to acquire or hold the rental property. Principal-and-interest repayments reduce the loan balance over time, which reduces the interest component available to claim but builds equity that can be accessed for future purchases.

Consider an investor who buys a two-bedroom unit near Wells Road using a loan at 80 per cent loan-to-value ratio. If that loan is set to interest-only, the monthly repayment might be around $400 lower than the principal-and-interest equivalent, depending on the rate. That difference can cover part of the body corporate levy or create a buffer during periods of low occupancy. After three years, the balance is unchanged, meaning the investor can still claim interest on the full amount. If the same loan were set to principal-and-interest, the balance would have reduced, equity would have grown, but the claimable interest would be lower each year.

Split Loan Structures That Preserve Flexibility

Splitting the loan into two or more accounts lets you apply different repayment types and rate structures to the same property. One portion might be fixed for stability, another variable for offset access and extra repayments. Or one portion interest-only to maximise deductions, another principal-and-interest to build equity without cross-contaminating the tax treatment.

In our experience, investors who later want to release equity for a second purchase benefit from having kept one loan portion separate. If you redraw from a principal-and-interest investment loan to fund a personal expense, that redrawn portion is no longer deductible. If instead you had kept a separate loan split with its own offset or redraw, you can direct personal funds there and leave the investment loan untouched. When you eventually want to leverage equity, you establish a new split secured against the property for investment purposes only, and the full interest on that split remains claimable.

Offset Accounts and Investment Loans

An offset account linked to an investment loan reduces the interest charged, which in turn reduces the interest you can claim. If you are holding surplus cash, it may be more tax-effective to place it in an offset linked to your owner-occupied loan rather than the investment loan. That way, non-deductible interest is reduced and the investment loan continues to generate the maximum allowable deduction.

Some investors prefer to keep the investment loan without an offset and instead maintain a separate variable-rate split on their home loan where surplus funds sit. That approach works particularly well for Edithvale buyers who rent locally while building a portfolio, then later move into an owner-occupied property and want to convert their current home into a rental. The loan structures are already separated by purpose, so the conversion is administratively simple and nothing is redrawn or recontributed in a way that muddies the deduction.

Variable or Fixed Rate for Investment Property

Variable rates allow extra repayments, redraw, and portability without break costs, which suits investors who expect income to fluctuate or who may refinance or sell within a few years. Fixed rates lock in repayments and provide certainty, but limit flexibility and typically do not allow offset accounts. A split structure lets you hold both.

At current variable rates, many lenders apply a margin above the standard owner-occupied rate for investment loans. That margin reflects the higher risk profile and serviceability settings applied under APS 220. Fixed rates for investment purposes are priced separately and are influenced by wholesale funding costs rather than the cash rate alone. Depending on your deposit size and lender, the difference between variable and fixed can range from negligible to more than half a percentage point. The investment loans page outlines how these rates are assessed and what influences the margin.

Structuring for Future Portfolio Growth

Each new loan is assessed on your total serviceability, which includes all existing debt. Lenders add a buffer of three percentage points to the product rate and calculate whether you can service all loans at that higher figure. If your investment loan is interest-only, the buffer is applied to the interest-only repayment. If the loan is principal-and-interest, the buffer is applied to that higher repayment, which can reduce how much you can borrow next time.

Investors who plan to acquire a second property within a few years often structure the first loan as interest-only with a five-year term, then convert to principal-and-interest once the second loan settles. That sequence keeps the initial servicing footprint low and maximises borrowing capacity at the time it is needed. After the second purchase, both loans can be reviewed and adjusted depending on cash flow, equity position, and whether a third property is planned.

Quarantining Loans by Property and Purpose

Each investment property should have its own loan facility, not a single loan secured across multiple properties. Separate facilities make it easier to sell one property without triggering a full discharge, preserve the deductibility of each loan by tying it to a specific asset, and simplify the paperwork if you later want to refinance or restructure.

If you buy a unit in Edithvale and later a townhouse in Aspendale Gardens, each property should secure only its own loan. Cross-collateralisation, where one property secures multiple loans, can reduce flexibility and create complications on sale. Some lenders require it to avoid Lenders Mortgage Insurance, but the long-term cost in lost flexibility often outweighs the upfront saving. A broker can identify lenders who will allow standalone security without requiring you to pledge both properties.

Changes to Negative Gearing and How Structure Interacts With the Rules

From 1 July 2027, net rental losses on residential properties acquired on or after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward. They cannot be offset against salary or wages. Properties held before that date, and eligible new residential dwellings, continue under the existing rules.

If you are buying an established property now, the way you structure the loan does not change the quarantining of losses, but it does affect how much loss you generate and how much you can claim once the property becomes cash-flow positive or is sold. A higher loan balance produces a higher interest deduction, which increases the annual loss. Under the new rules, that loss can be carried forward and used to offset future rental income from this property or others, or offset against the capital gain when you sell. Structuring to maximise the deductible interest, by keeping the loan balance high and avoiding redraw for private purposes, therefore increases the size of the carry-forward pool.

Eligible new builds retain access to negative gearing against all income. If you are acquiring a new dwelling that qualifies, an interest-only structure will maximise the annual offset against your salary. If the property does not qualify, an interest-only structure still maximises the loss, but that loss is quarantined and carried forward rather than providing an immediate tax refund.

The interaction between loan structure and the new rules is complex and depends on your income profile, the number of properties you hold, and your plans for acquisition and disposal. The loan health check service includes a review of how your current structure will perform under the updated tax settings and whether a restructure before 1 July 2027 would improve your position.

Call one of our team or book an appointment at a time that works for you using the link on this page. We work with investors across Edithvale, Chelsea, Chelsea Heights, and Aspendale Gardens to structure loans that support long-term portfolio growth and preserve access to every available deduction and equity release opportunity.

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