Smart Ways to Approach an Investment Loan Application

Lenders assess your application mainly on your ability to repay, using your income, expenses and debts. Most also count part of the property's expected rent, usually no more than 80 per cent. If you get your numbers and structure right before you apply, the process runs more smoothly.

This guide is for Castle Hill residents who are weighing up a first or next investment purchase and want to apply with confidence. It covers how lenders assess you, how rental income is treated, how structure affects your outcome, and what the recent tax changes mean for your planning.

How Do Lenders Assess an Investment Loan Application?

Lenders assess your income, expenses, existing debts and the new loan repayments, then test whether you could still afford them at a higher rate. Banks and other authorised deposit-taking institutions must test new borrowers at a rate at least 3.0 percentage points above the loan's actual rate.

That buffer applies to new borrowers and was confirmed by APRA at its May 2026 update. Your existing debts count too. Credit cards are generally assessed on the limit, not the balance, so a high limit you never use can still reduce your investor borrowing. Closing unused cards before you apply is often worth considering, though you should weigh up whether you want to keep that credit available.

If you want a rough starting point, our borrowing capacity page explains how the assessment works, and a broker can run your figures against several lenders.

How Is Rental Income Treated When You Apply?

Lenders usually count only part of the expected rent. APRA's guidance is that prudent lenders include no more than 80 per cent of expected rental income, to allow for periods when the property is empty.

The remaining 20 per cent is not a fee. It is a buffer for vacancy. Costs such as management fees, repairs and rates are separate and still come out of your own budget. Lenders also tend to place less weight on a rental appraisal for a property you are about to buy than on actual rent already being received. The exact evidence each lender accepts differs, so confirm this before you choose a lender.

Interest Only or Principal and Interest: Which Suits Your Investment?

Interest only means your repayments cover just the interest for a set period, while principal and interest repayments also reduce the loan balance. Interest only lowers your repayments for a time, but you pay nothing off the loan during that period.

It does not lift your borrowing power. For assessment, lenders look at your ability to repay principal and interest over the remaining term after the interest-only period ends. A 30-year loan with a five-year interest-only period is assessed over the final 25 years.

Here is an illustrative example at 6.75% p.a. Take a $600,000 loan. Interest-only repayments would be about $3,375 a month (600,000 x 6.75% / 12). After five years, principal and interest over the remaining 25 years would be about $4,145 a month. That is roughly $770 a month more, and the balance is still $600,000. Your actual rate will depend on your lender, deposit and loan structure.

The trade-off is clear. You get lower cash outflow now, but you carry a higher repayment later and build no equity from repayments in the meantime. Interest rates and fees on interest-only loans vary by lender, so compare them.

Investment Loan Application Example: Structuring for Cash Flow

A sound structure can ease cash flow without adding risk you did not plan for. Consider a Castle Hill couple buying their first investment unit. They have a home loan with equity available, and they want to avoid using savings for the whole deposit.

The situation: they plan to use equity in their home as part of the deposit, which means two loans sit behind the purchase. Where borrowing for the investment goes above 80 per cent of a property's value, lenders mortgage insurance is generally required. Each lender sets its own limits on this.

The solution: their broker sets the investment borrowing as a separate loan from the home loan. This keeps the purpose of each loan clear and makes the interest records easier to manage at tax time. The couple also keep any personal-use drawdowns away from the investment loan, because deductibility depends on how borrowed money is used. Tax treatment depends on your circumstances, so speak with your accountant.

The outcome: the couple have two loans with clear purposes, they know the interest on the investment loan relates to the rental property, and they see in advance how the extra debt affects their repayments. The trade-off is that they now carry more total debt, so a rise in rates or a long vacancy would hit their budget harder. They agreed on a cash buffer before they applied.

If you are ready to compare lenders, our investment loans page outlines the options we work with.

Do the Negative Gearing Changes Affect Your Application?

Many lenders have changed how they treat negative gearing in serviceability. For established properties bought after 12 May 2026, borrowing capacity may be lower. Policies differ by lender, so check with your broker, and speak with your accountant about the tax treatment. Negative gearing rules differ depending on when you buy and what you buy.

Losses on residential investment properties you held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income. Eligible new builds acquired after that date can also keep this treatment. From the 2027-28 income year, net rental losses on established residential properties acquired after that time can only be used against other residential property income. Unused losses carry forward.

The capital gains rules are also changing. From 1 July 2027, the 50 per cent discount is replaced for gains accruing after that date by cost base indexation and a 30 per cent minimum tax rate. These rules are detailed, and the outcome depends on your situation. Please get advice from your accountant before you decide what to buy.

Should You Refinance Before Buying Another Property?

Refinancing before your next purchase can be worth considering if your current loan limits your options, though it is not always the right move. A review shows what your existing loan is costing you and how your lender sees your debts and equity.

A loan health check is a sensible first step, and our refinancing team can explain the costs involved. Discharge fees, valuation fees and any fixed rate break costs vary by lender and loan, so weigh those against any saving. Also keep in mind that a new application means a fresh assessment of your income and debts.

What Should You Prepare Before Applying?

Prepare your income evidence, a clear picture of your debts and a realistic budget that includes holding costs and a vacancy allowance. Self-employed investors should expect lenders to look closely at tax returns and business income, and some borrow through a trust or company, which has its own rules.

A broker can compare the lenders on their panel, so you can match your situation to a lender before you apply. Each credit application is recorded as an enquiry on your credit file, and several applications in a short time can count against you. Matching your situation to a lender's policy before you apply can help you avoid a decline and extra enquiries.

Call one of our team or book an appointment at a time that works for you, and we will work through your investment loan application with you.

Frequently Asked Questions